Tariff scramble: US firms buy up Chinese goods before prices rise

Washington's trade deficit hits five-month high, as American companies import more from China before tariff increase.

    The pace of goods going to the United States has quickened, as importers and exporters seek to beat upcoming tariffs [Stringer/Reuters]
    The pace of goods going to the United States has quickened, as importers and exporters seek to beat upcoming tariffs [Stringer/Reuters]

    The US trade deficit soared to a five-month high in May as imports increased, as businesses restocked in advance of an increase in tariffs on merchandise from China and in spite of a broad rise in exports.

    US-China trade tensions have caused wild swings in the trade deficit, with exporters and importers trying to stay before the tariff fight between the two economic giants.

    The US Commerce Department said on Wednesday that the trade deficit surged 8.4 percent to $55.5bn. Data for April were also revised higher to show the trade gap widening to $51.2bn instead of the previously reported $50.8bn.

    The goods trade deficit with China - a major focus of President Donald Trump's "America First" agenda - increased 12.2 percent to $30.2bn, with imports rising 12.8 percent.

    Trump recently raised additional import tariffs on Chinese goods, prompting Beijing to retaliate. But last week, Trump and Chinese President Xi Jinping agreed to a trade truce and a return to talks.

    White House trade adviser Peter Navarro said on Tuesday that talks were heading in the right direction, but it would take time to seal the right deal.

    Taming the deficit

    In May, goods imports increased four percent to $217bn. Imports of consumer goods rose by $1.4bn, while those of motor vehicle and parts soared $2.3bn to a record high. There were also big increases in imports of capital goods, industrial supplies and materials.

    Goods exports also rose - an upswing of 2.8 percent to $140.8bn. Exports of consumer goods increased significantly.

    Meanwhile, soya beans and civilian aircraft exports rose. However, gains in the latter are likely to be capped after Boeing in March suspended deliveries of its fastest-selling MAX 737 jetliner. The aircraft was grounded indefinitely following two deadly crashes in five months. Production of the troubled plane has been cut.

    When adjusted for inflation, the goods trade deficit expanded from $4.8bn to $87bn in May. The increase in the real goods trade deficit - accounting for the rise in the price level - suggests that trade could be a drag on second-quarter gross domestic product (GDP).

    Trump and others have pushed for a currency realignment, which could help narrow the US trade deficit by devaluing the dollar. 

    Trade contributed almost one percentage point to the economy's 3.1 percent annualised growth pace in the first quarter.

    The Atlanta branch of the US Federal Reserve has forecast GDP rising at a 1.5 percent rate in the April-June quarter. The wider trade deficit added to weak housing, manufacturing and business investment, along with moderate consumer spending, in producing a downbeat assessment of the economy.

    SOURCE: Reuters news agency