US trade gap widens most since 2015; China deficit hits record

[WASHINGTON] The US trade deficit widened in July by the most in three years and the gap with China hit a record as the Trump administration imposed tariffs on a range of Chinese goods, prompting retaliatory levies from Beijing.

The gap increased 9.5 per cent to US$50.1 billion, the biggest since February, from a revised US$45.7 billion in the prior month, Commerce Department data showed Wednesday. Exports fell 1 per cent, driven by steep drops in shipments of aircraft and soybeans, while imports rose 0.9 per cent in a broad-based gain.

A widening trade deficit would drag on growth in the third quarter after a narrower gap - partly on higher soybean exports ahead of Chinese levies - helped boost the pace of expansion in the prior period to the fastest since 2014. While other indicators suggest gross domestic product is on track for solid gains in the second half, the latest figures show how President Donald Trump's tariffs may start to weigh on the economy.

The goods-trade gap with China widened to a record US$36.8 billion on an unadjusted basis, up from US$33.5 billion in the prior month, according to the report. The deficit with the European Union jumped to a record US$17.6 billion from US$11.7 billion, while the gap with Mexico narrowed to US$5.5 billion from US$7.4 billion.

The increase in the overall trade gap was the biggest since March 2015, the Commerce Department said. The median estimate of economists surveyed by Bloomberg called for a deficit of US$50.2 billion.

Exports fell to US$211.1 billion, led by a US$1.57 billion drop in shipments of civilian aircraft and a US$682 million decline in soybeans. Imports increased to US$261.2 billion, boosted by computers, oil and vehicles.

The 16 per cent decline in soybean exports brought the total to US$3.53 billion, though shipments year-to-date are still up 43 per cent from a year earlier. Corn exports in July fell by about 11 per cent to US$1.28 billion.

The Trump administration imposed duties on US$34 billion of Chinese goods in early July, prompting immediate retaliation from Beijing, and another US$16 billion in levies on Aug 23. Negotiations with Canada to modernize the North American Free Trade Agreement ended without a deal by Friday's deadline, though talks were scheduled to resume Wednesday.

The China tensions are poised to deepen, which could affect trade even more starting this month. Mr Trump - who characterizes the deficit as showing how past administrations' policies have hurt the US - wants to move ahead with tariffs on US$200 billion of Chinese imports as soon as a public-comment period concludes Thursday, Bloomberg News reported last week.

The trade conflict between the US and China has disrupted traditional trading patterns for soybeans, the second-biggest American crop. Mexico is taking over as the top buyer of US soybeans as China shuns the oilseed after imposing tariffs on American supplies in July.

The US farm-trade surplus probably will drop 7.7 per cent in the 12 months starting Oct 1 amid the standoff with China, US Department of Agriculture data showed last week. On Aug 31, US cash soybean prices fell to the lowest since the last recession ended.

Net exports added 1.17 percentage point to GDP growth in the April-June period, the most since 2013. That helped GDP grow at a 4.2 per cent annualized pace, the best in almost four years, which Mr Trump credited to his policies.

Petroleum exports were a record US$15.8 billion; petroleum imports of US$20.3 billion were most since December 2014

Adjusted for inflation, goods-trade deficit widened to US$82.5 billion from US$79.3 billion; real petroleum deficit little changed at US$11.9 billion.

BLOOMBERG