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Demand for Imports Pushes Trade Deficit to Record High

Demand for Imports
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EDITOR NOTE: The US trade deficit has been sinking steadily since the early 1970s, and last June it declined to a record low of $75.7 billion. If you’re not familiar with the term, it simply means that we’re spending more on imports than we’re earning on exports. Our largest trade deficit happens to be with China, in case you didn’t know. So, what are we to make of all this? Trade deficits are tricky to interpret. We’ve experienced robust growth in times of surging deficits. And some countries with large surpluses, like Japan, were experiencing economic stagnation. Typically, the US makes a good chunk from exporting services, but that slowed down amid the pandemic. Consumer spending on discretionary items is expected to begin slowing, which should relieve the downward deficit pressures. But overall the trend points downward.

WASHINGTON (AP) — The U.S. trade deficit increased to a record $75.7 billion in June as a rebounding American economy sent demand for imports surging.

The Commerce Department reported Thursday that the deficit rose 6.7% from a revised May deficit of $71 billion. The June deficit set a record, topping the old mark of $75 billion set in March. The trade deficit represents the gap between what the country exports to the rest of the world and what it purchases from other countries.

In June, exports edged up a modest 0.5% to $207.7 billion while imports surged 2.1% to $283.4 billion.

The politically sensitive goods deficit with China rose to $27.8 billion in June, up 5.8% from the May level. So far this year, the goods deficit with China, the largest that the United States runs with any country, totals $158.5 billion, an increase of 19.2% compared to the same period in 2020.

Donald Trump made China a principal target of his trade policies, accusing the country of violating trade laws to gain unfair advantages over American companies and workers. Trump imposed a variety of tariffs on China, triggering a tit-for-tat trade war in which the Chinese retaliated by imposing higher tariffs on U.S. goods such as soybeans.

Through the first six months of this year, the U.S. trade deficit totals $428.6 billion, up 46.4% from the deficit during the same period in 2020, a time when Americans’ demand for imports was being dampened by the pandemic.

Analysts said the surge in the deficit may start to slow in coming months as the initial boom in consumer spending from the economy’s re-opening starts to level off and increased growth in foreign countries helps to boost U.S. export sales.

“With the peak in consumer goods demand behind us, we expect consumer goods imports to weaken from here while survey measures of export orders support that exports growth is set to strengthen,” said Michael Pearce, senior U.S. economist at Capital Economics.

With the U.S. economy rebounding much more quickly than the rest of the world, U.S. demand for imported goods is out-stripping a slower increase in foreign countries’ appetite for U.S. exports.

The widening trade deficit has been a drag on the economy this year. While the overall economy, as measured by the gross domestic product grew at a strong rate of 6.5% in the April-June quarter, the trade deficit subtracted 0.4 percentage-points from GDP growth.

The deficit in just goods trade totaled $93.2 billion in June, a figure that was reduced by a $17.4 billion surplus the U.S. recorded in trade in services. The United States typically runs surpluses in services, items such as airline travel and hotels, but that figure has been depressed this year because of the pandemic’s impact on foreign travel.

Original post from AP News

All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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