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US trade deficit expands in June amid growing tensions
WASHINGTON, Aug 4, 2018 (BSS/AFP) – The US trade deficit swelled in
June by the largest amount in 19 months, reversing much of May’s trade-war
driven export bonanza, even as brinkmanship between Beijing and Washington
worsened.
A dip in auto exports and rising oil prices in June drove the increase in
the gap between US imports and exports, the Commerce Department reported
Friday.
And bilateral US deficits widened with China, the European Union, Canada
and Mexico, all trading partners that have retaliated against President
Donald Trump’s multi-front global trade war.
Shortly before the numbers were released, Beijing warned it was ready to
impose new tariffs on $60 billion in American products, responding to Trump’s
plans to jack up the punitive duties on the next $200 billion in Chinese
goods to be targeted.
The White House quickly fired back, calling Beijing’s latest counter-
threat “weak.” Top economic aide Larry Kudlow warned China it “better not
underestimate” Trump’s resolve in the conflict.
The US trade deficit rose 7.3 percent or $3.2 billion in June to $46.3
billion, overshooting analyst expectations in the largest jump since November
2016, according to the Commerce Department.
The result could weigh on revised calculations of second quarter growth in
the United States, which Trump hailed as a key achievement last week after it
was reported as the strongest GDP increase in nearly four years.
In May, a rush by Chinese importers to beat Beijing’s looming counter-
tariffs led to a surge in US exports of crude oil and soybeans, temporarily
driving down the deficit and boosting GDP growth in the April-June period.
While soybean exports continued to rise in June, US shipments of
automobiles, aircraft and pharmaceuticals fell.
Ian Shepherdson of Pantheon Macroeconomics warned that “a big decline is
coming” in the third quarter, which should boost the trade gap by about $3
billion a month.
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– Exports and the strong dollar –
“Exports will rise over the quarter, but strong domestic demand growth
will lift imports more rapidly,” he said in a client note.
Trump has said trade wars are “easy to win” and made the soaring US-China
goods deficit — which rose to $32.5 billion last month — a principal issue
in his nationalist economic agenda.
But industry and allies in his Republican Party have expressed fear the
dispute could spiral out of control.
Average prices for imported oil hit the highest level since December 2014
at $73.60 a barrel — bringing the value of oil imports for the month to
$19.6 billion, also the highest in three and a half years.
Rising oil prices also boosted the value of American crude exports, which
were the highest on record at $20.4 billion.
As the Federal Reserve gradually tightens interest rates, the US dollar
also has risen steadily since April, making American exports more expensive
to foreign buyers.
Oxford Economics said the escalating trade battle between Washington and
Beijing made the future even more difficult to predict.
“Our modeling indicates a trade war with China would have clear, negative
implications for the US economy,” the forecasting firm said in a research
note.
Concluding a two-day visit to Washington on Friday, Jesus Seade, a trade
negotiator for Mexican President-elect Andres Manuel Lopez Obrador, said
signaled there was a chance to resolve talks to update the North American
Free Trade Agreement this month.
“It is feasible that is feasible” to finalize the negotiations in August,
he told reporters, but cautioned that there were “complicated things” left to
resolve.
Mexica officials will return to Washington next week to continue the
discussions.
Wall Street had a good day despite the disappointing trade numbers and
concerns about the confrontation with China, which came along with a robust
but weaker-than-expected monthly jobs report.
All three major stock indices finished the week slightly higher.
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