Weak Exports Push US Trade Deficit to 5-Month High

The US trade deficit rose to a five-month high in July as exports of soybeans and civilian aircraft declined and imports hit a record high, suggesting the Trump administration’s protectionist policy was so far not having an impact.

The administration’s “America First” policies have left the United States embroiled in tit-for-tat tariffs with the European Union, Canada and Mexico as well as an escalating trade war with China. The goods trade deficit with China surged to a record high in July, Reuters reported.

The commerce department said on Wednesday the trade gap jumped 9.5% to $50.1 billion, increasing for a second straight month, suggesting that trade could be a drag on economic growth in the third quarter. Data for June was revised to show the trade deficit rising to $45.7 billion, instead of the previously reported $46.3 billion.

Economists polled by Reuters had forecast the trade deficit swelling to $50.3 billion in July. President Donald Trump has defended the duties on steel, aluminum imports and a range of Chinese goods as necessary to protect American industries from what he says is unfair foreign competition.

The administration says eliminating the trade deficit will put the economy on a sustainable path of faster growth, an argument that has been dismissed by economists as flawed given constraints such as low productivity and slow population growth.

The United States and China have slapped retaliatory tariffs on a combined $100 billion of products since early July, with more in the pipeline, posing risks to both domestic and global economic growth.

The trade gap narrowed in April and May as farmers front-loaded soybean exports to China before Beijing’s retaliatory tariffs came into effect in early July, Bloomberg reported.

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.