U.S. trade gap widens most since 2015

The U.S. 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 percent to $50.1 billion, the biggest since February, from a revised $45.7 billion in the prior month, Commerce Department data showed Wednesday. Exports fell 1 percent, driven by steep drops in shipments of aircraft and soybeans, while imports rose 0.9 percent in a broadbased 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.

“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 LLC.

At the same time, 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 goods-trade gap with China widened to a record $36.8 billion on an unadjusted basis, up from $33.5 billion in the prior month, according to the report. The deficit with the European Union jumped to a record $17.6 billion from $11.7 billion, while the gap with Mexico narrowed to $5.5 billion from $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 $50.2 billion.

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

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

Soybean exports “have much further to decline in the coming months to return to more normal levels,” Daniel Silver, an economist at JPMorgan Chase & Co., said in a note.

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 percent annualized pace, the best in almost four years, which Trump credited to his policies.

Bloomberg The General Motors Co. Renaissance Center stands across the Detroit River as people fish in Ontario, Canada. The U.S. trade deficit widened in July by the most in three years.