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WASHINGTON – The US trade deficit registered its largest monthly increase in nearly three and a half years in July, as tax cuts and increased federal spending contributed to
The trade deficit for goods and services widened 9.5% from June to $ 50.08 billion seasonally adjusted in July, the Commerce Department said Wednesday. US exports fell 1% from June, while imports increased 0.9% over the month.
Economists surveyed by the Wall Street Journal were expecting the deficit to reach $ 50.3 billion.
The July trade deficit has been the largest since February. The decline in exports was due to lower soybean shipments, which were hit by retaliation in China earlier this month and by civilian aircraft. At the same time, imports increased as Americans bought more equipment goods, heavy vehicles and industrial supplies abroad, offsetting the decline in imports of consumer goods such as consumer goods. pharmaceuticals.
After a second quarter in which a relatively narrow trade deficit has benefited the gross domestic product, many economists anticipate a larger gap in the coming months as imports continue to grow faster than exports.
If this happens, international trade could become a hindrance to the economy in the third quarter.
"The strength of domestic demand is attracting imports, while the pace of export growth is slowing from the unsustainable pace of spring," said Ian Shepherdson, Chief Economist at Pantheon Macroeconomics. "Net foreign trade contributed 1.2 percentage points to GDP growth in the second quarter, but most, if not all, of this stimulus will be reversed in the third quarter."
A widening trade gap could pose questions to President Donald Trump, who frequently uses the trade balance as a barometer of US economic health and said that "deficits are bad for the economy."
Economists dispute this view, noting that the United States has had trade deficits for decades.
They also say that recent US policies are more likely to widen the deficit than to decrease it. Fiscal stimulus measures adopted by congressional Republicans late last year fueled strong domestic demand, partly satisfied by imports. At the same time, the Trump administration's confrontational commercial rhetoric further shattered foreign currencies at a time when investors are frightened by rising US interest rates and financial crises in Turkey and Argentina.
The WSJ Dollar Index, which measures the greenback against a basket of currencies, has risen 7.9% since mid-April. A stronger dollar tends to make US goods and services less competitive than those of other countries.
"The difference in growth between the United States and other countries seems to be amplified in part by US expansionary fiscal policy," said Aichi Amemiya, chief economist at Nomura. "Ironically, it's a negative trade deficit."
In the first seven months of 2018, the trade deficit increased by 7% over the previous year to reach $ 337.88 billion. Imports increased 8.3% in the first seven months of this year, while exports increased 8.6% over the same period.
The Commerce Department's Trade Report can be found here.
Write to Paul Kiernan at [email protected] and Sarah Chaney at [email protected]
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