U.S. Trade Deficit Widens as Exports Sag, Imports from China Surge

U.S. exports took a hit from an ailing global economy in August and imports from China surged, fueling the largest expansion of America’s trade deficit in five months.

The data released on Tuesday by the Commerce Department illustrates the U.S. economy’s vulnerabilities to a strong dollar and weak demand in foreign markets, which could impose further caution on the Federal Reserve’s plans to hike interest rates.

The trade deficit swelled by 15.6 percent to $48.3 billion in August, according to data that is adjusted for seasonal factors. The scope of the increase was accentuated by the unusually narrow trade deficit registered in July.

But the size of the gap stands well above the average levels seen in recent years. This puts the onus on U.S. consumers to deliver stronger economic growth because the rest of the world will probably be a drag.

Overall exports fell 2 percent to their lowest level since October 2012. Exports to Mexico fell by $1.5 billion in August and the European Union bought $500 million less from America than it did in July, according to data on bilateral trade which is not seasonally adjusted.

The declines are partly due to expectations of higher interest rates in the United States that have pushed the value of the dollar higher, reflecting the strength of America’s economy relative to its trading partners. A stronger dollar makes U.S. goods less competitive abroad.

But weaker demand abroad is also playing a role, and U.S. Treasury Secretary Jack Lew will ask policymakers from other countries gathering in Lima, Peru this week to stimulate their economies to kick-start global growth.

A 3 percent increase in imports from China also factored into the widening of the trade deficit. China’s yuan currency has devalued sharply in recent months amid concerns of a possible crash in the Chinese economy, which is the second largest in the world after America’s.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.