US trade deficit shrinks, gap with China remains elevated

WASHINGTON: The US trade deficit narrowed slightly in July, but the gap with China, a focus of the Trump administration’s “America First” agenda, surged to a six-month high.
The report from the Commerce Department on Wednesday came against the backdrop of an escalation in the trade war between the United States and China. The two economic giants slapped fresh tariffs on each other on Sunday, fanning fears of a global recession. President Donald Trump on Tuesday warned he would be “tougher” on Beijing in a second term if trade talks dragged on.
“Investors and the markets are unlikely to see any reprieve in the trade sanctions and tariffs and the Trump administration may even redouble their efforts to tame the massive red ink,” said Chris Rupkey, chief economist at MUFG in New York. “It doesn’t look like America is winning the trade war.”
The trade deficit dropped 2.7 per cent to $54.0 billion as exports rebounded and imports fell. Economists polled by Reuters had forecast the trade gap narrowing to $53.5 billion in July. The monthly trade gap has swelled from $46.4 billion at the start of 2017, when Trump took over from former president Barack Obama.
The politically sensitive goods trade deficit with China increased 9.4 per cent to $32.8 billion on an unadjusted basis, the highest since January, with imports jumping 6.4 per cent. Exports to China fell 3.3 per cent in July. Smoothing out seasonal fluctuations, the shortfall with China dropped 1.7 per cent in July as both imports and exports dropped.
US exports to China have declined 18.2 per cent in the first seven months of this year and imports are down 12.3 per cent, pointing to a restriction of trade flows between the two nations.
The trade deficit with the European Union raced to a record high in July, with the shortfall with Germany the largest since August 2015. This could draw more criticism from Trump, who last week complained “the euro is dropping against the dollar ‘like crazy,’ giving them a big export and manufacturing advantage.”
In July, goods exports increased 0.9 per cent to $138.2 billion. But with China imposing additional tariffs on US soybeans, beef and pork, exports are likely to decline in the months ahead. China’s commerce ministry said in early August that Chinese companies had stopped buying US farm products.
A survey of manufacturers on Tuesday showed a measure of export orders received by factories plummeted in August to the lowest level since April 2009.
In July, exports were boosted by consumer goods, which increased $1.5 billion. Capital goods exports rose $0.8 billion. There were also increases in exports of motor vehicles. Exports of industrial supplies and materials, however, decreased $1.7 billion, with shipments of crude oil falling $0.5 billion.— Reuters