President Trump with Federal Reserve Chairman Jerome Powell ealier this year. Trump wants the Fed to lower interest rates later this month.
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The U.S. trade deficit soared past $100 billion for the fourth time this year, according to government data released today. It did so behind a confusion-tinged second tidal wave of gold imports from Switzerland and the normal, if slightly sluggish, resumption of holiday imports from China.
The release of the U.S. Census Bureau data is squeezed between two important events.
It comes just days after an appellate court upheld as unconstitutional the type of tariffs on which President Trump relied in April to announce the trade war with the world and little more than two weeks before the Federal Reserve is to decide whether to lower interest rates for the first time this year.
The rationale for Trump relying on the International Emergency Economic Powers Act was the trade deficit itself, even though the United States has run a trade deficit for more than three decades. Although the trade deficit has grown significantly in that time – and is growing at a record pace this year – the ratio between U.S. exports and U.S. imports has remained relatively constant.
Trump has asked the Supreme Court to rule on the case quickly.
Federal Reserve’s dilemma
The Fed is caught between a job market that is showing signs of softening, which would help make the case for lowering rates, and rising inflation, which would argue against. The role of tariffs in inflation is only beginning to appear in available data, along with other signs. As I wrote recently, the value of tariffs in June topped 10% of the value of all imports for the first time in decades, having quadrupled since just January.
That 10%, and the uptick in inflation, is without the majority of tariffs threatened against India, Brazil, China, Canada, Mexico and Switzerland in place.
Confusion and trade flows
The 39% tariff on Switzerland went into effect in late July – amid confusion and what eventually was clarified as a mistaken belief that gold imports would be subject to duties.
That led to the value of gold (HS 7108) increasing 1061.42%, from $899.99 million in June to $10.45 billion in July, an attempt to avoid tariffs that were not to be collected after all.
The value of gold and its U.S. trade tends to increase in times of uncertainty and volatility, tariffs rising or not.
Somewhat similarly, if not as dramatically, imports from China increased in July, up 39.38% overall. President Trump had granted a reprieve from an excessive threatened tariff rate while the two nations negotiated.
In July, U.S. imports from China increased in a number of categories, when compared to June, including these three:
- Lithium-ion batteries, from $588.72 million to $1.34 billion, an increase of 127.06%. These batteries are often associated with the electric-car industry but can also be used as backup power sources, including in data farms being built to support the artificial intelligence industry.
- Toys, from $455.41 million to $822.38 million, an increase of 80.58%. This ties in to the traditional imports for the Christmas season. The total this year is 30.91% lower than July of last year.
- Christmas-related products, up 199.55% from June but down 4.36% from the same month one year ago. The increase was $490.41 million.
Overall, Chinese imports are down 35.27% from last July.
Broader trade trends
Looking at the bigger picture, total U.S. exports and imports with the world grew 4.93% in July from June, ending a rare three consecutive months of decline in merchandise trade.
Those are the only three months this year that trade did not top $100 billion.
Trade had soared in the first three months of the year – with the deficit topping $100 billion all three months – as importing companies tried to get their goods into the United States before President Trump’s threatened trade war, formally announced April 2, took effect.
With Trump threatening to resume tariffs against a wide range of commodities and countries in August, trade snapped the three-month decline in July. The increase was fueled by a 10.06% gain in overall imports, which was offset by a 2.64% decline in U.S. exports.
The U.S. deficit for July was $117.13 billion, a jump of more than one-third from the $85.67 billion total in June.
The two biggest monthly trade deficits in U.S. history were in January ($153.28 billion), as Trump came into office threatening tariffs, and March ($151.63 billion), the month before the “Liberation Day” tariffs that kicked off the United States’ trade war with the world. The U.S. deficit had never topped $100 billion in a month until last May but has now done so 10 of the last 15 months.
On the year, the U.S. deficit was a record $809.29 billion, up from $661.01 billion last year. The United States is also running at a record pace for total trade ($3.31 trillion), exports ($1.25 trillion) and imports ($2.06 trillion).
While the U.S. trade deficit continues to rise, the increase in July was at least partially due to confusion over whether tariffs being threatened against Switzerland would apply to gold and a normal increase in Christmas-related imports from China. Nevertheless, it is sometimes the headlines that people remember – and a $100 billion U.S. trade deficit is easy to remember.