US trade deficit drops to $43.1 billion in May

Irving Hamilton
July 9, 2018

The U.S. trade deficit dropped in May to the lowest level in 19 months as U.S. exports rose to a record level.

According to CNBC, the data released by the Commerce Department revealed the United States trade deficit shrank to $43.1 billion in the month of May, the lowest levels seen since October 2016.

And the USA trade gap with China crept higher, rising $1.2 billion to $32 billion.

Total exports rose almost two per cent to a record US$215.3 billion, much faster than the 0.4 per cent jump in imports to US$258.4 billion.

The new figures were released just hours after President Donald Trump unleashed a $34 billion barrage of border taxes targeting Chinese industries that US officials say have benefited from the alleged theft of American intellectual property.

Americans imported $43.7 billion in goods from the largest USA trading partner, $1.8 billion more than in April, but exported only $11.7 billion, $600 million more than the prior month. The deficit with Mexico jumped 18.8 percent. As has been the case for decades, America's deficit with China is the largest imbalance with any country.

The trade deficit in May reached its lowest level since October 2016, near the end of the Obama administration.

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"The story presumably is that Chinese importers have been buying USA soy ahead of the imposition of tariffs - effective today - in retaliation for United States tariffs on Chinese goods", Ian Shepherdson of Pantheon Macroeconomics wrote in a client note.

President Donald Trump has already imposed levies on imported steel, aluminum, solar panels and washing machines. China announced that its retaliatory tariffs had also taken effect. Washington has "ignited the biggest trade war in economic history", China's Commerce Ministry said in a printed statement.

Overall exports increased 1.9 per cent to US$215.3 billion as soybean shipments overseas nearly doubled to US$4.1 billion.

In addition to the battle with China over technology, the administration has imposed penalty tariffs on China and other countries in an effort to protect USA producers of steel and aluminum.

On the import side, imports of telecommunications equipment and computers saw big gains.

Exports of goods rose to their highest on record of US$144.2 billion, supported by all-time record shipments of foods and feeds, including a US$2 billion jump in soybeans which are the subject to tariff threats in the huge Chinese market.

Exports and imports of goods accounts for about three-fourths of America's total trade; the U.S. typically runs a deficit in merchandise trade and a surplus in services.

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