July, the first full month of president Donald Trump's trade war with China, saw the United States register its largest trade deficit with the world in three years, defeating Trump's aim of lowering this massive shortfall in trade.
The U.S. trade deficit with China rose to a record new high despite the punishing tariffs imposed by the U.S. on a wide range of Chinese exports. The Trump administration levied higher duties on $34 billion of Chinese goods on July 6, triggering immediate retaliation from China. The U.S. then imposed another $16 billion in taxes on Aug. 23. A further $200 billion in new tariffs will be imposed before the end of the year.
America's total trade deficit (goods and services) with the world jumped 9.5 percent to $50.1 billion compared to $45.7 billion in June. This was the biggest deficit since February, according to the U.S. Department of Commerce. Adding to U.S. woes is a drop in exports by one percent in July.
The Commerce Department said this decline was caused by steep drops in exports of aircraft and soybeans, most of which went to China before the start of Trump's trade war in July.
Total U.S. merchandise exports fell to $211.1 billion in July. Much of this drop was accounted for by a $1.57 billion drop in shipments of civilian aircraft and a $682 million plunge in soybean exports. Imports increased to $261.2 billion, or by one percent, due to increased shipments of computers, oil, and motor vehicles.
U.S. agriculture is feeling the brunt of Trump's trade war. Soybean exports plummeted 16 percent in July and amounted to $3.53 billion. July corn exports fell by 11 percent to $1.28 billion
The trade picture with China remains bleak for the United States. The merchandise trade gap with China ballooned to a record $36.8 billion compared to $33.5 billion in June, according to the Commerce Department. The deficit with the EU soared to a $17.6 billion, a new record, from $11.7 billion. On the other hand, the trade gap with Mexico fell to $5.5 billion from $7.4 billion.
Economists said the widening U.S. trade deficit will impair the growth of the U.S. economy in the third quarter. The spike in the deficit in July was surprising given the second quarter saw a narrowing of the trade gap. The quarter also saw the pace of expansion expand at its fastest since 2014.
Trump's tariffs are beginning to show their negative impacts on America's economy. The unwarranted U.S. tariffs and retaliatory tariffs will eventually disrupt the flows of goods and services, said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC.
