U.S. trade debt jumps by most in three years
Gap widens to $50B in July despite tariffs on Chinese goods
WASHINGTON — The U.S. trade deficit widened for the second straight month in July as well as by the most in three years, reaching the highest level since February, as imports hit an all-time high. The deficit in goods with China and the European Union set records even as the Trump administration imposed tariffs on a range of Chinese goods, prompting retaliatory levies from Beijing.
The Commerce Department said Wednesday that the deficit in goods and services — the difference between what America sells and what it buys from other countries — rose to $50.1 billion in July from $45.7 billion in June. Exports slipped 1 percent to $211.1 billion. Imports increased 0.9 percent to a record $261.2 billion on increased purchases of trucks and computers.
The increase in the overall trade gap was the biggest since March 2015, the Commerce Department said.
The deficit rose despite efforts by President Donald Trump to bring it down by renegotiating trade agreements and imposing taxes on imports.
The United States has already slapped tariffs on $50 billion in Chinese goods in a dispute over Beijing’s aggressive efforts to challenge American technological dominance. It is taxing imported steel and aluminum and may target auto imports next, causing a rift with the EU. Trump also has threatened to exclude Canada from a revamped North American trade agreement.
But the president’s aggressive policies have had little impact on the trade numbers. The goods deficit with China rose 10 percent in July to a record $36.8 billion. The gap with the EU shot up 50 percent to a record $17.6 billion and with Canada nearly 58 percent to $3.1 billion. The July deficit
with Mexico, however, plunged 25 percent to $5.5 billion.
So far this year, the trade deficit is up 7 percent from January-July 2017.
Trump views trade deficits as a sign of economic weakness, caused by bad trade deals and abusive behavior by America’s trading partners.
A widening trade deficit would drag on growth in the third quarter after a narrower gap 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 Trump’s tariffs may start to hurt the economy.
“If we see tariffs and retaliatory tariffs, it will disrupt
the flows of goods and services — and you’ve seen some of that,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.
Mainstream economists blame persistent U.S. trade deficits on an economic reality that can’t be changed much by trade policy: Americans spend more than they produce, and imports fill the gap. The strong U.S. economy is also encouraging Americans to buy more foreign products.
Another way to see the situation is that the U.S. economy “is straining to meet demand; domestic production can’t handle all the demand, so pulling in goods and services from abroad is a release valve to satisfy very strong demand,” Stanley said.
“The core story here is that strong domestic demand is sucking in imports the trade deficit likely will
be flat-to-higher over the next couple of months,” Ian Shepherdson, chief economist at Pantheon Economics, wrote in a research report.
In July, the United States ran a deficit of $73.1 billion in goods such as cars and machinery, but recorded a surplus of more than $23 billon in services such as education and banking.
The China tensions are poised to deepen, which could affect trade even more starting this month. Trump — who characterizes the deficit as showing how past administrations’ policies have hurt the U.S. — wants to move ahead with tariffs on $200 billion of Chinese imports as soon as a public-comment period concludes Thursday, Bloomberg News reported last week.