U.S.’s Trade Deficit Grew in July
When President Trump took office in January of last year, he brought a renewed interest to a figure that hadn’t been as talked about previously: the U.S.’s trade deficit. In other words, the United States imported more goods than it exported during the month. Trump has often cited the trade deficit when speaking on the needs for tariffs, saying that other countries were taking advantage of us. That’s why it’s interesting to note that the U.S. trade deficit actually increased by 10% during the month of July.
As MarketWatch reports, the Commerce Department announced that the deficit reached $50.1 billion in July — up from June’s $45.7 billion. This is the result of imports increasing by 0.9% to reach $261.2 billion while exports decreased 1% to $211.1 billion. Among the export products that saw dips from the previous month were soybeans, although it’s likely that the surge in June was due to foreign importers looking to beat the retaliatory tariff deadline.
One of the more interesting reasons why the trade deficit is widening actually points to a strong U.S. economy. As the theory goes, Americans are purchasing more imports because they have more money to spend while other countries with less booming economies aren’t purchasing as many American imports. On top of that, a strong dollar means favorable exchange rates for stateside buyers, making imports cheaper.
Although some have mocked the President’s stance on the trade deficit, accusing him of not comprehending what the figure represents, it is true that a growing trade deficit could serve to dampen GDP growth. Speaking to MarketWatch, Andrew Hunter of Capital Economics explained, “The sharp widening in the nominal trade deficit to a five-month high … suggests that the big boost to GDP growth from net exports in the second quarter will be reversed in the third.” However he added, “But with domestic demand growth still robust, that isn’t a huge concern.” You may recall that the U.S. GDP grew by an impressive 4.2% in Q2 while economists estimate a 3% growth for Q3.
Surely the administration won’t be pleased to hear that the trade deficit is widening instead of retracting. That said a lot has happened on the trade front since July, including the announcement of a tentative trade deal with Mexico to potentially replace NAFTA. Thus you can bet there will be many watching these figures closely in the coming months.