Trade Picking Up, but Still Far From Pre-COVID Levels

The trade deficit widened in July as imports outpaced exports. The deficit in goods and services expanded to a seasonally adjusted $63.6 billion, from $53.5 billion in June — an increase of 18.9%. Trade in services remained in surplus at $17.4 billion, but it shrank to its lowest level since 2012, as many foreign visitors haven’t been able to travel to the United States. The nominal goods deficit increased to $80.9 billion. However, the trade gap should narrow over the next few months, now that the dollar has weakened recently. That should support exports.

Both imports and exports rose in July. About a third of the increase in both was due to a rebound in motor-vehicles trade, as supply chains disrupted by COVID-19 started to recover. Imports increased 10.9%, driven largely by more purchases of capital goods, consumer products and foreign-made vehicles. Exports saw a smaller increase of 8.1%, with gains across the board, including crude oil, plastic materials, natural gas and soybeans. Exports of services rose 0.7%, as demand for travel and transport services remained subdued.

Despite the improvement in July, trade volumes remain low. Total exports through July are down 17.4% year-over-year, against a 13.8% decline in imports. While the modest rise in trade volumes is encouraging, they have a long way to go before they return to pre-COVID-19 levels.

Trade flows should gradually pick up over the next few months, as long as the spread of the virus remains under control. Services trade, however, will take longer to recover, with borders still partly closed to and from the United States.

Sources: Department of Commerce, Trade Data