The U.S. commerce department released the monthly trade deficit report for June last week. Data showed that the U.S. trade deficit expanded at the fastest pace since November 2016. The gains were underpinned by a stronger exchange rate for the U.S. dollar and a strong underlying economic growth.
Official data showed that the trade deficit in goods and services rose 7.3% for June from the previous month. The trade deficit recorded a seasonally adjusted $46.35 billion. Exports from the U.S. fell 0.7% on a month over month basis while imports rose 0.6%.
The trade deficit data confirmed the views that expectations for a narrowing trade deficit are reversing. This comes despite the renewed trade policies being pursued by the U.S. President Trump. Economists polled expected to see a wider trade deficit gap for the period.
The trade deficit data comes as the U.S. President has reiterated that the U.S. manufacturers were losing to more competitive foreign rivals. He has embarked on protectionist trade policies that include imposing import tariffs on durable goods such as solar panels, washing machines and steel and aluminum imports in the month of June.
The U.S. President is also expected to follow through on his threats from March of imposing more tariffs of China amount to tens of billions of dollars on Chinese imports. This led China to respond with retaliatory tariffs on the U.S. Products that were hit included soybeans which are a major export to China.
In this backdrop, some economists view that the trade deficit might have increased following the threat of tariffs. Companies were seen expanding the imports ahead of the new trade tariffs that came into effect.
As a result, the market view is slightly cautious with focus turning to the trade deficit report for July which could account for the first-hand impact of the trade tariffs. The data from June showed that the U.S. steel and aluminum imports had their effects. Imports of iron and steel raw materials fell 19% on a seasonally adjusted basis in June. This was down from May’s $1.48 billion. Import of other metals such as aluminum was seen shedding 10% on the month to $1.25 billion.
The declines come as the U.S. was seen increasing its imports of both the metals before the threats began to flow.
The looming trade dispute with China was also seen as a contributing factor to the unseasonal surge in the U.S. soybean exports during the three months ending June. But this is expected to reverse during the third quarter. Soybean shipments surged to the highest level which helped to narrow down the trade deficit. The trade deficit figures were, in fact, one of the lowest since late 2016.
This is also said to have had a sizeable impact on the gross domestic product. According to the preliminary GDP reports, the U.S. economy was seen expanding at a pace of 4.1%. This was the strongest pace of increase seen in the recent quarters.
The soybeans exports were the single most exports that helped to narrow down the trade deficit. The data comes as China is reportedly said to shift its soybean imports from Brazil and other countries. The trend is expected to, however, reverse for the months ahead.
The impact of the reduced exports from the U.S. to China is expected to hit the U.S. economic growth in the second half of the year. Foreign trade contributed 1.1% to the GDP growth during the April through June quarter.
The data comes as the U.S. economy was seen running a trade deficit for decades. Despite the trade tariffs, the trade deficit is expected to remain the same. However, on the economic growth, the recent tax cuts are expected to keep more spending power to the U.S. consumers which are expected to soften the blow from the trade tariffs.