Star Metro - US trade deficit widest in two years on imports surge

Overall, the trade gap widened to $78.8 billion, from a revised $73.0 billion in June, the Department of Commerce said.

The growth was slightly more than analysts expected and the widest since June 2022.

Businesses were likely to be frontloading imports ahead of an increase in tariffs, analysts say, given that Washington earlier unveiled plans to hike levies on Chinese goods ranging from semiconductors to batteries and solar panels.

In July, imports jumped 2.1 percent to $345.4 billion, boosted by capital goods like computer accessories, as well as by industrial supplies.

Exports, meanwhile, edged up 0.5 percent to $266.6 billion, the Commerce Department report said.

Among individual segments, exports of semiconductors rose but auto shipments and that of consumer goods fell as well.

Capital goods imports have been supported by boosts from investments relating to government incentives in the Inflation Reduction Act and CHIPS Act, said Matthew Martin, US economist at Oxford Economics.

Another source of support is the prospect of lower interest rates, he added.

"Depleted inventories and resilient consumer demand should ensure the other components of imports stay on a strong growth path as well," said Martin.

US consumer demand has held up in the face of high interest rates, as the central bank hiked the benchmark lending rate in recent years to counter soaring inflation.

Households have continued spending, dipping into savings, supported by a robust jobs market.

A reduction in interest rates, widely expected later this month, could bring the world's biggest economy a further boost.

Exports have had a harder time with global demand weakening and with a strong dollar, analysts noted earlier.

- China trade -

In July, the US goods deficit with China increased by $4.9 billion to $27.2 billion, as exports fell and imports picked up.

"The trade gap with China blew out in July," said economists Carl Weinberg and Rubeela Farooqi of High Frequency Economics in a note.

"The surge in imports may reflect efforts to get goods into the United States before elections bring more tariffs on their products at the border," the note added.

But on a quarterly basis, the goods deficit with China -- a contentious issue during the trade war between both countries -- narrowed to $68.2 billion in the second quarter this year.

This was the smallest since the first quarter of 2020.

"This report confirms that trade continues to drag down GDP growth at the start of the third quarter," said Weinberg and Farooqi.

A.Desjardins--SMC