Deficits with China and the European Union — two of President Donald Trump’s favorite trade villains — hit all-time highs, contrary to the stated goals of his trade confrontations (MANDEL NGAN)

Washington (AFP) – The US trade deficit surged in July on record imports that created burgeoning gaps with trading partners in the crosshairs of President Donald Trump’s aggressive policies, according to government data released Wednesday.

With US goods facing retaliatory tariffs in many countries, exports dropped sharply that month, the Commerce Department reported, pushing the trade deficit with China to an all-time high.

In addition to subtracting from growth, the high deficit could rekindle Trump’s ever-present ire about how the United States is treated by its trading partners, and prompt him to unleash steep tariffs on a massive amount of Chinese goods this week.

“This report brings a record trade gap with China … which is unlikely to soften the US stance on tariffs,” RDQ Economics said in a research note.

The US trade gap with the European Union also hit a record, coming just days before US Trade Representative Robert Lighthizer is due to meet his EU counterpart Cecilia Malstrom in Brussels on Monday to try to defuse the dispute between the two major economies that have exchanged tariffs on billions of dollars in goods.

The deficit with Canada also widened, according to the report released shortly before Washington and Ottawa were due to resume talks aimed at salvaging the North American Free Trade Agreement as a three-nation pact with Mexico.

The difference between total US imports and exports of goods and services jumped more than $4 billion, an increase of 9.5 percent, to $50.1 billion — just a few hundred million shy of the consensus forecast among economists.

It was the second consecutive month that saw the deficit widen, following the surge of exports in May amid a flurry of buying to outrun tariffs imposed in US markets abroad. 

The figures do not bode well for growth in the second quarter, although other economic indicators point to healthy demand and expanding GDP.

It was also a month of multiple records in the trade data: imports of goods and services were the highest ever, as were service exports. 

– Record gaps –

The widening deficits are contrary to the stated goals of Trump’s multifront trade confrontations. 

The US president has imposed steep tariffs on steel and aluminum from key trading partners, as well as punitive duties on $50 billion in annual imports from China, with the possibility that another $200 billion will be targeted as soon as this week.

And other factors are working against his goal of reducing the US trade deficit, which he has said he views as stealing from the American economy. With the Federal Reserve gradually raising interest rate, the US dollar has strengthened, making US goods more expensive; and the massive corporate tax cuts from last year tend to boost investment which means higher spending on equipment.

RDQ Economics said “the US cannot enjoy an investment spending boom without installing a significant amount of capital equipment and … this means a surge in capital goods imports.”

US imports in July rose 0.9 percent to $261.2 billion, the highest ever, including record purchases of both goods and services.

Exports fell one percent to $211.1 billion, including record shipments of industrial supplies and petroleum, while sales of soybeans — subject to Chinese retaliatory tariffs — dropped by $700 million.

Imports of petroleum hit the highest level in four years at $23.6 billion, on the highest price in four years of an average $64.63 a barrel.

Exports and imports of autos both rose, but the volatile aircraft category dropped $1.6 billion.

Meanwhile, the trade gap with China jumped to a record $36.8 billion, not seasonally adjusted; the deficit with the EU hit a record $17.6 billion; and the deficit with Canada jumped by $1 billion to $3.1 billion.

In contrast, the deficit with Mexico narrowed to $5.5 billion, a nearly $2 billion decline — although the total is up for the first seven months of the year.

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