The U.S. trade deficit rose to a record $73.25 billion in August, up from $70.3 billion in July, as both goods and service trade balances declined, according to Commerce Department data released on Tuesday.
Gains in exports—which rose by 0.5% in August–could not catch up with the increase in imports—up by 1.4%.
This put the trade deficit back to June’s level of $73.23 billion—the previous record—and erased all improvement in trade deficit that occurred from June to July. That improvement was considered an encouraging upside surprise to gross domestic product in the third quarter.
Now, the economy is back to square one as gains in exports—which rose by 0.5%–could not catch up with the increase in imports—up by 1.4% in August.
Most notably, the U.S.-China goods trade deficit rose by $3.1 billion to $28.1 billion as the Chinese economy slowed down significantly in August, while demand for foreign goods and services from the U.S. remained strong.
This increase in the U.S.-China trade deficit can also be attributed to firms having to revert some of their production back to China from Southeast Asian countries, which were mostly in lockdown because of the delta variant surge.
The service trade surplus continued its declining trend since February, falling by 8% to $16.1 billion in August. Exports of travel services led the decline, decreasing by 12% on the month, while at the same time, imports of travel services were up by 7.9%.
This divergence somewhat points to the uneven vaccination rates between the United States and other countries and the risks from the delta variant’s surge that prevented foreign tourists from coming to the U.S. while American travel abroad continued to get back to normal.
Even though strong gains in trade imports might suggest that consumer demand in the U.S. was healthy, that improvement in spending on foreign goods and services will not translate into any increase in overall GDP in the third quarter as gains in the consumption component are offset by increases in the trade deficit.
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