WASHINGTON – The U.S. trade deficit climbed in May as a surge in imports of Chinese-made cellphones and computers pushed the politically sensitive imbalance with China to the highest level in six months.
The trade deficit rose to $41.1 billion in May compared to April’s $37.4 billion, the Commerce Department reported Wednesday. It was the largest imbalance since February. The trade deficit is the gap between the value of goods and services the United States imports from other countries and the smaller value of U.S. exports.
Exports, which have struggled this year because of a strong dollar and weak growth in overseas markets, edged down 0.2 per cent to $182.4 billion. Imports jumped 1.6 per cent to $223.5 billion.
Jennifer Lee, senior economist at BMO Capital Markets, said the weakness in exports could become more pronounced in coming months given the dollar’s recent rise following the financial market turbulence caused by the vote in Britain to leave the European Union.
“Given the way the greenback is headed, and quite likely slower growth in Europe, don’t expect too much” from exports this year, she said in a note to clients.
A strong dollar makes American products more expensive in overseas markets. The dollar had been weakening slightly but has strengthened following the British vote as foreign investors have sought the safety of U.S. investments.
A wider U.S. trade deficit acts as a drag on growth because it means the nation is earning less on overseas sales of U.S. exports while spending more on imported products.
Jesse Hurwitz, an economist at Barclays Research, said the wider trade deficit was likely to trim overall growth by 0.5 percentage point in the second half of this year “as slower growth abroad and uncertainty following the UK referendum vote will likely lead to softer foreign demand for U.S. exports.”
America’s deficit with China jumped 19.4 per cent to $29 billion, the largest imbalance since November. Presumptive Republican presidential nominee Donald Trump has accused the Obama administration of failing to protect U.S. workers from unfair trade practices in China and other countries.
Trump has sought to tap into the economic anxiety of Americans who have seen jobs disappear in an increasingly global economy. In a recent trade speech, Trump said he would exit from the North American Free Trade Agreement with Canada and Mexico if it was not renegotiated, kill the pending Trans-Pacific Partnership trade agreement and take a more aggressive approach to China’s trade practices, which he said were costing American jobs.
The U.S. Chamber of Commerce, normally an ally of Republicans on trade, charged that Trump’s approach would cost 3.5 million U.S. jobs and result in higher prices for American consumers and a weaker economy. Trump said he would brand China a currency manipulator, a charge which could lead to trade sanctions if negotiations with China did not resolve the issue.
Through the first five months of this year, the deficit is running 3.5 per cent below the same period in 2015, a year in which America’s deficit in goods and services trade rose 2.1 per cent to $500.4 billion. The lower deficit so far this year reflects the fact that while U.S. exports are down, the value of imports is down by a larger amount, reflecting in large part lower oil prices.
For May, oil imports increased 8.4 per cent to $11.1 billion, reflecting a rebound in prices during the month. The average price for a barrel of crude oil rose $4.71 to $34.19, the biggest one-month increase since a $5.55 rise from April to May in 2011.
Even with the gain, the average price for a barrel of crude is still $16.57 below the price a year ago.
The deficit with China is running 6.4 per cent below last year’s pace, although the deficit is still the largest with any single country.
The deficit with the European Union rose 12.6 per cent to $13.4 billion in May. America’s trade relationship with the 28 nation EU could undergo a significant change if Britain goes ahead with its decision to leave the EU.