US trade deficit widens to two-year high on imports

REUTERS: The U.S. trade deficit widened to the highest level in more than two years in July as businesses likely front-loaded imports in anticipation of higher tariffs on goods, suggesting trade could remain a drag on economic growth in the third quarter.

While the surge in imports reported by the Commerce Department yesterday would subtract from gross domestic product, it was an indication of strong domestic demand and inconsistent with financial market fears of a recession.

“The July trade data suggest that net trade will weigh on third-quarter GDP growth but that is hardly cause for concern when it reflects the continued strength of imports, painting a better picture of domestic demand than renewed recession fears would suggest,” said Thomas Ryan, North America economist at Capital Economics.

The trade gap increased 7.9 percent to US $ 78.8 billion, the widest since May 2022, the Commerce Department’s Bureau of Economic Analysis said. Economists polled by Reuters had forecast the trade deficit would increase to US $ 79.0 billion from the previously reported US $ 73.1 billion in June.

The government revised the trade data from January through June 2024 to incorporate more comprehensive and updated quarterly and monthly figures.

Imports increased 2.1 percent to US $ 345.4 billion. Goods imports rose 2.3 percent to US $ 278.2 billion, the highest since June 2022. They were boosted by an increase in capital goods, which increased US $ 3.3 billion to a record high, mostly reflecting computer accessories.

Imports of industrial supplies and materials, which include petroleum, increased US $ 2.8 billion. There were also rises in imports of non-monetary gold-finished metal shapes.

President Joe Biden’s administration has announced plans to impose steeper tariffs on imports of Chinese electric vehicles, batteries, solar products and other goods.

The government said last week a final determination will be made public in the “coming days”. There are also fears of even higher tariffs on Chinese imports should former President Donald Trump return to the White House after the November 5 election.

The politically sensitive goods trade deficit with China increased US $ 4.9 billion to US $ 27.2 billion. Exports to China fell US $ 1.0 billion while imports advanced US $ 3.9 billion.