What the US trade deficit reveals about Trump’s protectionist policies

Washington — The US trade deficit rose to a five-month high in July as exports of soybeans and civilian aircraft declined and imports hit a record high, suggesting the Trump administration’s protectionist policy was so far not having an impact.

The administration’s “America First” policies have left the US embroiled in tit-for-tat tariffs with the European Union, Canada and Mexico as well as an escalating trade war with China. The goods trade deficit with China surged to a record high in July.

The Commerce Department said on Wednesday the trade gap jumped 9.5% to $50.1bn, increasing for a second straight month, suggesting that trade could be a drag on economic growth in the third quarter. Data for June was revised to show the trade deficit rising to $45.7bn, instead of the previously reported $46.3bn.

Economists polled by Reuters had forecast the trade deficit swelling to $50.3bn in July. US President Donald Trump has defended the duties on steel, aluminium imports and a range of Chinese goods as necessary to protect American industries from what he says is unfair foreign competition.

The administration says eliminating the trade deficit will put the economy on a sustainable path of faster growth, an argument that has been dismissed by economists as flawed given constraints such as low productivity and slow population growth.

The US and China have slapped retaliatory tariffs on a combined $100bn of products since early July, with more in the pipeline, posing risks to both domestic and global economic growth.

The trade gap narrowed in April and May as farmers front-loaded soybean exports to China before Beijing’s retaliatory tariffs came into effect in early July.

US financial markets were little moved by the data. The deterioration in the trade deficit was flagged in an advance report published last month.

When adjusted for inflation, the trade gap increased to a five-month high of $82.5bn in July from $79.3bn in June. July’s so-called real trade deficit is above the second-quarter average of $77.5bn.

If that trend continues in August and September, trade could subtract from third-quarter gross domestic growth. Trade contributed 1.17 percentage points to the economy’s 4.2% annualised growth pace in the second quarter, which was almost double the 2.2% rate notched in the January-March period.

The goods trade deficit with China surged 10% to a record $36.8bn in July. The trade gap with Mexico narrowed 25.3% to $5.5bn while the shortfall with Canada shot up 57.6% to $3.1bn.

The trade deficit with the European Union soared 50% to a record high of $17.6bn.