US trade deficit surges to highest in 12 years

The United States trade deficit surged in July to US$63.6 billion, the highest level in 12 years, as imports jumped by a record amount.

The US Commerce Department reported that the July deficit, the gap between what America buys and what it sells to foreigners, was 18.9 per cent higher than the June deficit of US$53.5 billion. It was the largest monthly deficit since July 2008, during the 2007-2009 recession.

The July deficit increase was driven by a record 10.9 per cent increase in imports, which rose to US$231.7 billion. Exports were also up but by a smaller 8.1 per cent, to US$168.1 billion.

For July, the deficit with China in goods totalled US$31.6 billion, an 11.5 per cent increase from the June imbalance.

The goods deficit with Mexico hit a record high of US$10.6 in July. US President Donald Trump has claimed the new free-trade deal he has negotiated with Mexico and China will be a boon for American workers and businesses.

The United States ran a deficit in goods trade of US$80.1 billion in July, the highest on record. The US surplus in services, such as banking and insurance, declined to US$17.4 billion, the smallest services surplus since August 2012 and a reflection in part of the decline in airline travel during the pandemic.

The increase in the overall deficit in July was bigger than economists had been expecting.

Michael Pearce, senior US economist at Capital Economics, said he expected the rising deficit, which subtracts from US growth, would cut the gross domestic product, GDP, for the July-September quarter by about one percentage point. But he still forecasts that GDP would rebound at an annual rate of 30 per cent in the third quarter after having fallen at a rate of 31.7 per cent in the second quarter.

The pandemic has seriously disrupted global supply chains this year, and economists said while it was good news to see trade rebounding now, the gains are coming from very low levels.

“A strong and sustained rebound in trade flows is uncertain, given a still weak global growth and demand backdrop,” said Rubeela Farooqi, chief US economist at High Frequency Economics.

AP