US trade deficit widens in July; capital goods imports hit record high

The US trade deficit widened sharply in July as strong domestic demand boosted imports, positioning trade to exert another drag on economic growth in the third quarter.

The trade shortfall increased 24.4 percent to US$88.6 billion (HK$691.08 billion), the Commerce Department's Bureau of Economic Analysis and Census Bureau said on Thursday. Economists polled by Reuters had forecast the deficit at US$90.0 billion.

The deterioration was flagged by data last week showing an import-driven surge in the goods trade deficit in July.

Domestic demand soared in the second quarter, a combination of both strong consumer spending and business investment in artificial intelligence. Demand is, however, being satiated with imports, helping to widen the trade deficit.

Imports increased 2.8 percent to US$399.3 billion in July. Goods imports shot up 3.7 percent to US$320.6 billion. Imports of capital goods jumped US$14.4 billion to a record high US$140.3 billion, reflecting strong increases in computers, computer accessories and semiconductors, likely related to the AI buildout.

But imports of industrial supplies and materials, which include petroleum, dropped US$1.8 billion. Crude oil imports fell US$1.8 billion amid lower prices.

Exports decreased 2.1 percent to US$310.7 billion, with goods shipments dropping 3.0 percent to US$201.0 billion. They were led by an US$8.7 billion decline in industrial supplies and materials, mostly crude oil as well as nonmonetary gold, which is excluded in the calculation of gross domestic product. Capital goods exports, however, increased US$1.9 billion. Consumer goods exports rose US$1.7 billion, lifted by pharmaceutical preparations.

The goods trade deficit widened 17.3 percent to US$119.6 billion in July. When adjusted for inflation, the goods trade deficit increased 12.7 percent to US$106.4 billion. Trade subtracted 1.14 percentage points from GDP growth in the April-June quarter. The economy grew at a 1.5 percent annualized rate last quarter.

Imports of services decreased US$0.6 billion to US$78.7 billion in July, pulled down by charges for the use of intellectual property. Imports of transport services fell but those of travel services increased. Exports of services dipped US$0.4 billion to US$109.7 billion amid declines in travel, financial and transport services. Charges for the use of intellectual property rose as did exports of other business services.

Despite aggressive tariffs on imports, the United States posted record goods trade deficits with Mexico, Vietnam, Taiwan, Thailand, South Korea and Malaysia. The goods trade balance with Switzerland swung into deficit, while the shortfall with Canada decreased US$3.7 billion to US$3.2 billion in July. The US and Canada are embroiled in a trade war.

Reuters

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