US trade deficit hits 18-month low on record exports in May

Importers, exporters bump up purchases

WASHINGTON, July 7, (AFP): A burst of US exports of soybeans, commercial aircraft and other goods drove the American trade gap to its lowest level in 18 months in May, the government reported Friday.

As Washington prepared to embark on a multi-front trade war that month, the US trade deficit fell 6.6 percent to $43.1 billion in May due to all-time record exports.

The new figures were released just hours after President Donald Trump unleashed a $34 billion barrage of border taxes targeting Chinese industries that US officials say have benefited from the alleged theft of American intellectual property.

China immediately retaliated, marking the start of what Beijing called the largest trade war in history.

And within the May numbers, there were strong signs that by that importers and exporters bumped up their purchases and sales in anticipation of looming tariff battle.

The strong exports support stronger GDP growth in the second quarter but at the same time suggested the gain could be temporary.

“The story presumably is that Chinese importers have been buying US soy ahead of the imposition of tariffs — effective today — in retaliation for US tariffs on Chinese goods,” Ian Shepherdson of Pantheon Macroeconomics wrote in a client note.

Excluding the erratic categories of oil, aircraft and now soybeans, the deficit in fact rose in May, he said, meaning “the underlying upward trend will re-emerge soon.”

Total exports rose nearly two percent to a record $215.3 billion, much faster than the 0.4 percent jump in imports to $258.4 billion.

Exports of goods rose to their highest on record of $144.2 billion, supported by all-time record shipments of foods and feeds, including a $2 billion jump in tariff-threatened soybeans.

Early Friday, there was confusion

over what products Beijing authorities have targeted for retaliation against Trump’s offensive but China had announced plans to slap punishing duties on the US soy industry, which is heavily dependent on the Chinese and Mexican markets.

Despite the dip in the US trade deficit, the trend remained little changed, with the gap up nearly eight percent year-to-date compared to the first five months of 2017.

And the US trade gap with China crept higher, rising $1.2 billion to $32 billion.

Americans imported $43.7 billion in goods from the largest US trading partner, $1.8 billion more than in April, but exported only $11.7 billion, $600 million more than the prior month.

Elsewhere, total petroleum exports rose to $14.3 billion, the highest since December 2013, while non-petroleum exports also hit an all-time high of $130 billion.

Trade with countries currently locked in battle with Trump also was robust: Exports to Mexico were $22.7 billion, a record; while imports from Canada were the highest since December 2014 at $28.8 billion.

Imports from South Korea, which recently amended a free-trade agreement with the United States, were at an all-time high of $6.7 billion.

Rising crude prices also threatened to fuel the US trade gap, with the average price of a barrel hitting $58.37, a three-year record.

Economist Diane Swonk of Grant Thornton said the data showed output moving in split directions as the tariffs approached.

“Protected industries are increasing production until the bite of tariffs on margins hits while threatened industries are scrambling to get ahead of tariffs,” she wrote in research note.

“The vehicle industry has been particularly aggressive in both importing and exporting their vehicles to land ahead of US and retaliatory tariffs.”