US trade deficit in August the worst since 2006
The US's services trade surplus falls to the smallest since 2012 while its trade shortfall in merchandise climbs to record
The US trade deficit widened in August to the largest since 2006 as the nation imported a record amount of consumer goods amid a rise in demand ahead of the holiday-shopping season.
The overall gap in trade in goods and services expanded to $67.1bn in August from a revised $63.4bn in July, according to US commerce department data released on Tuesday. The median estimate in a Bloomberg survey of economists had called for a widening to $66.2bn. The positive balance on services dropped to $16.8bn.
Total imports increased 3.2% to $239bn, while exports rose 2.2% from the prior month to $171.9bn. The country's surplus in services shrank to the lowest since 2012. Meanwhile, the merchandise trade deficit expanded to a record high.
The coronavirus pandemic undid some of the Trump administration’s deficit-reduction efforts which were starting to bear fruit before Covid-19 upended demand and supply chains. American businesses, which drew down inventories at the start of the lockdown, have recently increased imports to replenish stocks ahead of the holidays.
Meanwhile, depressed economic activity abroad has led to smaller improvements in exports of goods from the world’s biggest economy. Trade volumes are higher than May’s pandemic lows, but remain depressed after the initial uptick stemming from reopening measures.
Together, the value of US exports and imports climbed to almost $411bn, still well below pre-pandemic levels.
The increase in imports of services outpaced the advance in exports, resulting in a lower overall surplus. Travel exports — which refer to tourists to the US — declined for a sixth straight month and were down 77% from a year earlier.
Imports of services, ranging from insurance and financial services to construction and travel, rose to almost $36.1bn.
This is the final release of data on trade in goods and services before the November 3 election. Trade has been a keystone of President Donald Trump’s agenda, with his administration determined to minimise US merchandise imports from China, which went from being America’s biggest trading partner at the end of 2017 to third-largest — after Mexico and Canada — by December 2019.
Trump’s strategy of imposing hundreds of billions of dollars of tariffs on imports of Chinese goods saw fewer products from the Asian nation arrive on US shores, with the monthly goods-trade deficits gradually becoming smaller since late 2018.
The partial trade agreement signed in January was supposed to result in China buying an additional $200bn in US exports over two years. While the country is unlikely to reach the targets in 2020 — partially because the pandemic upended demand and supply chains — it has made record purchases of American beef and maize, and has reiterated its commitment to the agreement.
Another central element of Trump’s 2016 election strategy was renegotiating the North American Free Trade Agreement (Nafta) with Mexico and Canada, a pact he threatened to terminate “if we don’t get the deal we want”.
After 13 months of talks, Nafta’s replacement — the US-Mexico-Canada Agreement — took effect on July 1. While the new arrangement is 95% the same as Nafta, according to Senate finance chair Chuck Grassley, a Republican, it affects the automotive and dairy industries.
During Trump’s first term, the goods-trade deficit with Mexico swelled, reaching a record $12.5bn in August.
With Canada, the US has had a goods-trade shortfall in every month except one in Trump’s term so far, while total goods trade has remained consistent until the pandemic came.
An almost 16-year-old trade dispute over state support for the world’s two biggest aeroplane makers has cast a shadow over the US’s trading relationship with the European Union, with billions of dollars of tariffs levied by both sides.
While both the EU and US say they want to reach a settlement to the aeroplane subsidies dispute, the Trump administration has rejected all of Brussels’s previous overtures. Through all of this, the EU is also having to navigate the UK’s exit from the economic bloc.
British Prime Minister Boris Johnson touts a free-trade accord with the US as a key prize of Brexit, but Democratic presidential nominee Joe Biden and House Speaker Nancy Pelosi told the UK that a deal would be contingent on preventing the return of a hard border in Northern Ireland, something Johnson’s move to rewrite sections of the Brexit deal threatens to bring about, risking more than two decades of peace.
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