The US trade deficit grew slightly to $42 billion in July as fewer exports to Europe, India and Brazil offset a steep decline in oil imports. The deficit with China, the world’s second largest economy, hit a new record.
The Commerce Department said on Tuesday that the trade deficit increased 0.2 per cent from June’s deficit of $41.9 billion.
US exports fell 1 per cent to $183.3 billion. Sales of autos, telecommunications equipment and heavy machinery all declined. Imports dropped 0.8 per cent to $225.3 billion.
Economists note that the deficit would have grown much faster had it not been for a 6.5 per cent drop in oil imports, largely reflecting cheaper global prices. Prices have increased since then, while demand for exports has dampened.
“It won’t be long before the deficit widens more significantly as the global slowdown takes a greater toll on US exports,” said Paul Dales, senior US economist at Capital Economics. Dales said trade will likely weigh on growth in the second half of the year.
A wider trade deficit acts as a drag on growth because the US is typically spending more on imports while taking in less from the sales of American-made goods. US growth slowed to a 1.7 per cent annual rate in the April-June quarter, well below what is needed to accelerate a slackening job market.
Growth has also weakened around the globe, which has hurt sales of US goods overseas.
Exports to Europe fell 11.7 per cent in July from June.
Many European countries are in recession, which has cut demand for US-made goods. The region accounts for about one-fifth of US exports.
Exports also fell in other big emerging economies. US sales of goods to Brazil declined 4.4 per cent. Exports to India dropped 1.2 per cent.
The US exported 0.4 per cent more goods to China, the world’s second largest economy. But the deficit with China grew 7.2 per cent in July to a record $29.4 billion. US imports from China jumped 5.6 per cent.
China’s economy has weakened this year and may be worsening. On Monday, China reported that its imports from the rest of the world shrank in August.