The U.S. trade deficit rose to a five-month high in July, with the politically sensitive gap with China hitting a record high, which economists said could embolden the Trump administration to aggressively pursue its “America First” agenda.
The administration’s protectionist trade policy has 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. President Donald Trump claims the United States is being taken advantage of by its trade partners.
The deterioration in the trade deficit reported by the Commerce Department on Wednesday came a day before the end of a public comment period on a list of US$ 200 billion worth of Chinese goods widely expected to be hit with tariffs soon.
“America still isn’t getting a fair deal on trade and that can only mean one thing,” said Chris Rupkey, chief economist at MUFG in New York. “President Trump is going unleash another US$ 200 billion in tariffs on China imports.”
The Commerce Department said the trade deficit increased 9.5% to US$ 50.1 billion as exports of soybeans and civilian aircraft dropped and imports hit a record high. The trade gap has now widened for two straight months.
The US government imposed import duties on goods including steel, aluminum, washing machines and solar panels early this year to protect American industries from what Trump says is unfair foreign competition. In addition, the United States and China have slapped retaliatory tariffs on a combined US$ 100 billion of products since early July.
Washington is also seeking to revamp the North American Free Trade Agreement. The United States struck a deal with Mexico last week, but negotiations with Canada have been contentious.
The administration says eliminating the trade deficit will put the economy on a sustainable path of faster growth. But economists say some of the government’s policies such as a US$ 1.5 trillion tax cut package early this year will worsen the trade deficit. The fiscal stimulus has boosted consumer and business spending, drawing in more imports.
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. The deterioration in the trade deficit in July was flagged in an advance report published last month.
U.S. stocks were trading lower on fears Trump would soon ramp up the trade war with China. The dollar fell against a basket of currencies, while U.S. Treasury prices were mixed.
The goods trade deficit with China surged 10% to a record US$ 36.8 billion in July. The trade gap with Mexico narrowed 25.3% to US$ 5.5 billion while the shortfall with Canada shot up 57.6% to US$ 3.1 billion. The trade deficit with the European Union soared 50% to a record high of US$ 17.6 billion.