China exports extend US trade GAP
A surge in imports from China pushed the US trade gap sharply higher in May, adding to a stream of weak data for the Obama administration already under pressure over the economy and stagnant jobs market.
The trade deficit grew by 4.8 per cent to $42.3bn, according to commerce department figures, the highest since November 2008 and at odds with the consensus of economists, who forecast the gap would shrink in May.
Imports from China, which is the country’s most politically sensitive trading partner, rose by nearly 12 per cent. That inflated the US trade gap with China by more than 15 per cent to $22.3bn, the biggest since last October.
Last week, official Chinese figures showed exports from China had surged 44 per cent year-on-year in June, lifting its monthly trade surplus to $20bn. Such imbalances infuriate US political leaders, despite China’s decision last month to end its near-two-year peg to the dollar.
Michael Feroli, an economist at JPMorgan Chase, said the surge in imports of Chinese goods in May could be temporary, as Chinese exporters rushed shipments ahead of a reduction in export tax rebates that takes effect on July 15.
But the overall trend of a resurgent trade deficit will concern the administration, which has focused on lifting exports to create jobs at home.
Mr Obama, after largely letting trade policy languish during the first 18 months of his administration, recently announced a drive to double exports within five years and promised progress on three long-stalled bilateral trade deals.
But few economists think the plan will have much impact. The proposal involves limited concrete actions beyond some bureaucratic reshuffling, a commitment to redouble efforts on marketing and a proposal to increase the activity of the Ex-Im Bank, the US official export credit agency.
The persistent US trade gap had narrowed in the initial months of the recession from late 2008, but analysts said yesterday the swelling shortfall could knock a percentage point from gross domestic product in the second quarter. Although exports have been growing in recent months as world trade continues to recover from a plunge last year, the strong dollar and the lack of domestic demand in the rest of the world mean the contribution of net trade to economic growth is likely to be negative over the next two years.
“Less domestic production, because of increased imports and less demand for higher-priced US exports, means less job creation in the manufacturing sector, a higher unemployment rate, and less income growth domestically,” said Stuart Hoffman, chief economist at PNC.

