U.S. trade deficit surges to five-month high as imports soar

The U.S. trade deficit jumped to a five-month high in May as imports of goods increased, likely as businesses restocked ahead of an increase in tariffs on Chinese merchandise, eclipsing a broad rise in exports.

The Commerce Department said on Wednesday the trade deficit surged 8.4% to $55.5 billion. Data for April was revised higher to show the trade gap widening to $51.2 billion instead of the previously reported $50.8 billion. Economists polled by Reuters had forecast the trade gap widening to $54.0 billion in May.

The goods trade deficit with China, a focus of President Donald Trump’s “America First” agenda, increased 12.2% to $30.2 billion, with imports rising 12.8%. Trump recently raised additional import tariffs on Chinese goods, prompting Beijing to retaliate.

Trump and Chinese President Xi Jinping last week agreed to a trade truce and a return to talks. White House trade adviser Peter Navarro said on Tuesday talks were heading in the right direction, but it would take time to get the right deal made.

The U.S.-China trade tensions have caused wild swings in the trade deficit, with exporters and importers trying to stay ahead of the tariff fight between the two economic giants.

In May, goods imports increased 4.0% to $217.0 billion. Imports of consumer goods rose $1.4 billion, while those of motor vehicle and parts soared $2.3 billion to a record high. There were also big increases in imports of capital goods and industrial supplies and materials.

Goods exports rose 2.8% to $140.8 billion. Exports of consumer goods increased $0.8 billion and soybean exports advanced $0.7 billion. Civilian aircraft exports rose $0.5 billion. Gains are, however, likely to be capped after Boeing (BA.N) in March suspended deliveries of its fastest-selling MAX 737 jetliner. The aircraft was grounded indefinitely following two deadly crashes in five months. Production of the troubled plane has been cut.

When adjusted for inflation, the goods trade deficit increased $4.8 billion to $87.0 billion in May. The increase in the so-called real goods trade deficit suggests that trade could be a drag on second-quarter gross domestic product.

Trade contributed 0.94 percentage point to the economy’s 3.1% annualized growth pace in the first quarter. The Atlanta Fed is forecasting gross domestic product rising at a 1.5% rate in the April-June quarter.

The wider trade deficit added to weak housing, manufacturing, business investment and moderate consumer spending in offering a downbeat assessment of the economy.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell