The US trade deficit widened sharply in June to the highest level in 20 months on increased imports from China, triggering fresh fears of a slowdown in the world’s largest economy.
The trade gap grew at the fastest monthly pace on record to reach $49.9 billion, threatening to erode already slow US economic growth.
“This is spectacularly terrible,” said Ian Shepherdson of High Frequency Economics, explaining that rising imports will eat into already anaemic domestic growth as cash drains out of the economy.
June’s deficit surged past the $42 billion level seen in May, to become the largest trade gap since October 2008, in the depths of a brutal recession. US imports increased three per cent to $200.3 billion in June, thanks in large part to the flow of autos and consumer goods, while exports declined 1.3 per cent to $150.5 billion, the Commerce Department said.
Surging US imports from China formed the bulk of the deficit, pouring pressure on Beijing to speed up the appreciation of the yuan against the greenback.
The politically sensitive US goods deficit with China increased to $26.2 billion in June from $22.3 billion the previous month.
American manufacturers and lawmakers often blame the low value of the Chinese currency for distorting trade flows, giving Chinese imports the upper hand.
“To keep Chinese products artificially inexpensive on US store shelves and discourage US exports into China, Beijing undervalues the yuan by 40 per cent,” claimed Peter Morici, business professor at the University of Maryland.
IMF staff believe the yuan is undervalued by anywhere between five and 27 percent.
Meanwhile June’s wider global deficit baffled both the US government and private economists.
It was about twice the amount forecast by the government in gross domestic product projections for the second quarter, published last month. Most economists had expected the deficit to hit $42.2 billion. It is “bad news for real GDP growth in the US, which will be further reduced by the effects of rising imports,” said Moody’s Economy.com economist Christopher Cornell.
International trade may contribute “slightly negatively” to GDP growth in 2010, said Natixis economist Thomas Julien. Some economists cut by half US growth in the second quarter of this year due to the much larger trade deficit and other weak data.
April-June growth could have been only 1.2 per cent rather than the 2.4 per cent estimated by the government, “placing the economy on even shakier ground than it seemed, and underlining why the Fed has shifted towards an easing bias,” said economist Nigel Gault of IHS Global Insight.