The U.S. international trade deficit remained broadly unchanged in July, widening slightly to $43.7 bn (market consensus $44.6bn). June’s data was revised very little, with the trade deficit slightly smaller than previously reported ($43.5 bn versus $43.6 bn previously).
After two months of gains, exports fell back 0.3% on a month-on-month (m/m) basis in July. Declines in automotive (-4.4%) and consumer goods (-4.1%) worked to offset gains in food and beverage (+3.0%) and capital goods (+2.1%). Services exports fell 0.2% in July, the first monthly decline of 2017.
Imports declined for the third consecutive month in July, falling 0.2% m/m. Declines in automotive (-2.7%) and industrial supplies (-1.7%) worked to offset gains in food and beverage imports (+1.7%) and capital goods (+2.4%). Service imports were unchanged.
Adjusting for price changes, export volumes fell 0.6%, partially reversing gains in the past two months. The volume of imports was unchanged in July.
Trade deficits with its major trading partners shifted in composition in July, as the widening in the trade deficit in dollar terms with Canada was more than offset by a narrowing of the trade deficit with Mexico. On a year-to-date basis, U.S. maintains the largest trade deficits with China (-$204 bn), Europe (-$96.3 bn), and Mexico ($-41.2 bn).
Key Implications
Today’s trade report erases some of the optimism on exports that the past two trade reports implied for the third quarter. Nevertheless, given a continuation of subdued growth in import volumes, net trade is on track to contribute positively to economic activity for the third consecutive quarter. Strong global demand is likely helping to boost foreign demand for U.S. goods, and a weaker U.S. dollar in trade-weighted terms should provide some support in upcoming months.
Hurricane Harvey will likely contribute to volatility in trade statistics in upcoming months, particularly concerning petroleum imports and refinery exports. However, any trade-related impacts are likely to be contained to the third quarter.
NAFTA renegotiations are just one of a few uncertainties that cloud the outlook for trade. Recent media reports suggest that NAFTA renegotiation is proceeding at a slower than anticipated pace, leaving it highly uncertain that the U.S. administration can conclude negotiations before year-end. Moreover, threats of a complete withdrawal from NAFTA, even if only temporary, only works to layer further uncertainty upon a world dealing with elevated geopolitical tensions. Policy and economic uncertainty has been linked to a lower propensity of businesses to invest in new machinery and equipment. As such, it implies that a prolonged period of uncertainty may in fact be deterring firms from making the necessary investments to improve their productivity.
