US trade gap widens 7 per cent in June as stronger dollar holds back exports, boosts imports

WASHINGTON – The U.S. trade deficit increased in June as solid consumer spending pulled in more imports, while the strong dollar restrained exports.

The Commerce Department said Wednesday the trade gap jumped 7 per cent to $43.8 billion in June, up from $40.9 billion in May. Imports increased 1.2 per cent to $232.4 billion, while exports edged lower to $188.6 billion from $188.7 billion.

U.S. manufacturers have been held back this year by the strong dollar, which makes their products more expensive overseas.

Exports of large capital equipment, including telecommunications gear and industrial machinery, fell 1.7 per cent in June. Imports of food, auto parts, and consumer goods such as pharmaceuticals and cellphones surged as Americans spent more.

Even so, the deficit narrowed in the second quarter compared with the first, boosting the economy.

Trade has been volatile this year. Labor disputes at West Coast ports in the first quarter delayed imports and the shipment of U.S. goods overseas. That lowered exports and pushed the deficit to a three-year high in March of $50.6 billion.

“The current level of … goods exports remains far below trend and we have yet to see a decisive rebound following the resolution of the West coast port strike,” said Laura Rosner, an economist at French bank BNP Paribas.

International trade subtracted about 2 percentage points from growth in the January-March quarter, when the economy expanded at an anemic annual rate of just 0.6 per cent. It then added 0.1 percentage point in the April-June quarter, when growth picked up to a 2.3 per cent pace.

The dollar has risen about 14 per cent in value against overseas currencies in the past year. That also makes foreign products cheaper in the U.S.

Greater consumer spending may also be pushing up imports. Steady hiring has given nearly 3 million more Americans paychecks in the past year, boosting their purchasing power. Consumer spending increased 2.9 per cent up in the April-June quarter after rising only 1.8 per cent in the first three months of the year.

The politically-sensitive trade gap with China narrowed to $28.9 billion from $30.6 billion in May, though it remains by far the largest with any single country. The deficits with Germany, France and the U.K. widened. The U.S. went from a small trade surplus with Canada in May to a deficit of $3.1 billion in June.

Separately, President Barack Obama says a trade deal in the works with 11 other Pacific Rim nations will open more markets for U.S. goods and boost the U.S. economy.

Yet trade officials were unable to reach a final agreement on the Trans-Pacific Partnership last week, partly because of differences over the treatment of dairy goods. An agreement could be reached at future meetings, officials said.

Obama won a hard-fought battle in Congress in June to secure fast-track negotiating authority, which allows him to submit trade agreements to Congress for an up-or-down vote.

Critics of the agreement say that it will cost the U.S. manufacturing jobs and does not appear to hold countries accountable if they weaken their currencies to gain an unfair trade advantage.