Latest data on the US trade deficit shows the balance with China continues to deteriorate. I have a feeling we will be hearing more about this. For the rest, we shouldn't draw too many conclusions, August is definitely an 'untypical' month.
The US trade gap with China widened to a record high in August even as America's overall deficit unexpectedly shrank. Figures released yesterday by the US commerce department showed the US deficit shrank to $39.21bn (£23.4bn) compared with a revised $40.03bn in July. It was the lowest gap in six months and undershot expectations that the deficit would widen to more than $41bn. But the bilateral deficit with China widened to$11.7bn in August, breaking the $11.3bn record set only a month previously. The widening is likely to worry US manufacturers, already concerned about the effect China's currency peg is having on US competitiveness. Most estimates suggest the tightly controlled renminbi is undervalued by at least 20 per cent.
Economists forecast the gap would swell further in the months ahead."Part of the reason is the currency in that the dollar is adjusting lower elsewhere, but it can't against the renminbi," said Ian Morris, economist at HSBC in New York. The National Association of Manufacturers warned that a continuation of the trend - where imports from China are six times greater than US exports to China - would result in the bilateral annual trade gap tripling in five years to more than $300bn. The narrowing of the overall US deficit led analysts to forecast even higher third-quarter growth in the US, with some suggesting gross domestic product could grow by as much as 6 per cent.
"This could take an already good number and turn it into an amazing one," said Carl Weinberg, at High Frequency Economics. Both US exports and imports fell in August. A 2.5 per cent fall in imports was led by a 13 per cent decline in imported cars and car parts. Exports fell 2.7 per cent, the biggest monthly drop since September 2001. Analysts said the August data were likely to have been affected by poor global activity and, more locally, by the blackout that paralysed large areas of the east coast. On the services side, both imports and exports set a new record and the services surplus widened by 5.6 per cent to $5.2bn in August.