US trade representative Michael Froman, right,and Japan's Economics Minister Akira Amari.  Picture: REUTERS
US trade representative Michael Froman, right,and Japan's Economics Minister Akira Amari. Picture: REUTERS

Washington — The US trade deficit increased less than expected in July as both exports and imports fell, suggesting that trade could contribute to economic growth in the third quarter.

The commerce department said on Wednesday the trade gap rose 0.3% to $43.7bn. June’s trade deficit was revised down slightly to $43.5bn from the previously reported $43.6bn.

Economists polled by Reuters had forecast the trade shortfall widening to $44.6bn in July. When adjusted for inflation, the trade deficit increased to $61.6bn from $60.8bn in June. The so-called real goods deficit in July was below the second-quarter average of $62.4bn.

While that suggests trade could add to GDP in the third quarter, economists at Wrightson ICAP cautioned that Hurricane Harvey could significantly affect commodity prices and trade volumes, and push up the trade deficit in September.

The politically sensitive US-China trade deficit increased to an 11-month high in July. That ongoing deficit has grabbed the attention of President Donald Trump, who has blamed it for helping decimate US factory jobs as well as stunting US economic growth.

Trump, who argues that the US has been disadvantaged in its dealings with trade partners, has ordered the re-negotiation of the North American Free Trade Agreement (Nafta), which was signed in 1994 by the US, Canada and Mexico.

On Saturday, Trump threatened to withdraw from a free trade deal with South Korea.

Prices of US treasuries were little changed by the data on Wednesday. US stock index futures were trading higher while the dollar was weaker against a basket of currencies.

In August, the government reported that trade contributed 0.2 of a percentage point to the economy’s 3.0% annualised growth pace in the second quarter.

In July, real goods exports slipped despite petroleum exports hitting a record high.

Exports of goods and services fell 0.3% to $194.4 billion in July. Exports of motor vehicles and parts fell by $0.6 billion, but exports of capital goods rose by $0.9 billion.

Exports to China increased 3.5%, while those to the EU tumbled 9.8%. Imports of goods and services slipped 0.2% to $238.1bn in July. Imports of motor vehicles and parts fell by $800m and crude oil shipments declined by $1bn.

Imports of goods from China increased 3.1%. The US-China trade deficit increased 3.0% to $33.6bn in July, the highest level since August 2016.

The US experienced a 3.7% drop in goods and services imported from the EU in July. The trade deficit with the EU increased 7.9% to an eight-month high of $13.5bn.

Reuters

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