U.S. trade deficit shrinks, gap with China remains elevated

U.S. trade deficit shrinks, gap with China remains elevated
# 05 September 2019 00:15 (UTC +04:00)

The U.S. 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, APA reports citing Reuters.

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% 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% to $32.8 billion on an unadjusted basis, the highest since January, with imports jumping 6.4%. Exports to China fell 3.3% in July. Smoothing out seasonal fluctuations, the shortfall with China dropped 1.7% in July as both imports and exports dropped.

U.S. exports to China have declined 18.2% in the first seven months of this year and imports are down 12.3%, 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.”

Washington on Sunday imposed 15% tariffs on more than $125 billion in Chinese imports, including smart speakers, Bluetooth headphones and clothing. In retaliation, China slapped additional duties on some of the U.S. goods on a $75 billion target list, including a 5% tariff on crude oil. Additional tariffs are due in December.

The trade tensions have rattled financial markets and triggered a global manufacturing recession. The trade-driven downturn in manufacturing is threatening the longest U.S. economic expansion in history.

A separate report from the Federal Reserve on Wednesday described the economy as having expanded at a “modest” pace through the end of August amid concerns over tariffs and trade policy uncertainty.

The dollar fell against a basket of currencies, while U.S. Treasury prices rose. Stocks on Wall Street were trading higher after upbeat data from China’s services sector.