U.S. trade deficit narrows in July, but trade flows slow

The United States’ trade deficit narrowed down during the month of July, but trade flows slowed; trade deficit narrowed $1.5 billion in July as a gain in exports outweighed a modest decline in imports. This morning’s release does not reflect the most recent escalation in the U.S.-China trade war, according to the latest research report from Wells Fargo Economics.

The trade deficit narrowed slightly to $54.0 billion in July, as imports fell 0.1 percent and exports rose 0.6 percent. But, with global growth weakening, goods exports are slowing on trend, and not just to China. The export orders component of the ISM manufacturing index suggests exports are set to slow further in coming months.

Imports were held down by capital goods imports, which are down 4.5 percent over the past year, due to weakness in investment. The most recent escalation of a 15 percent tariff on $111 billion of imports from China that was announced in August went into effect on Sunday.

That means the new tranche in the trade war, which affects mostly consumer products, did not affect trade in July. There is no denying the trade war is reducing trade flows.

"Given weakening global growth and further escalation in the trade war set to take place, we do not expect much relief for global trade," the report further commented.