(CN) — America’s trade gap with all countries surged 18.9% in July to the highest level since summer 2008, driven by a sharp increase in imports.
The difference between the goods and services the United States sells and buys from other countries rose to $63.6 billion, up from $53.5 billion in June, according to a Commerce Department report released Thursday.
While exports rose by 8.1% from $155.4 billion to $168.1 billion in July, imports jumped by a record 10.9% from $208.9 billion to $231.7 billion.
Michael Pearce, senior U.S. economist at Capital Economics, said that despite the high trade deficit, the economy should see gains in the third quarter. Many experts predict a big boost in the gross domestic product after a record drop of over 30% in the second quarter.
“Both exports and imports rebounded sharply in July, but the bigger gain in the latter means that the trade deficit widened,” Pearce said. “Net external trade is on track to be a drag on third quarter GDP, but that will be offset by a positive contribution from inventories, so we still expect third quarter GDP growth will be 30% annualized.”
The politically sensitive goods deficit with China also went up this summer. It stood at $31.6 billion, up 11.5% from June. America’s goods deficit with Mexico jumped to $10.6 billion in July, a record high.
President Donald Trump has made closing the overall trade gap, and the deficit with China specifically, a top priority under his “America First” policy, claiming the imbalance is the result of bad deals by past administrations.
In January, Trump signed a new trade agreement between the U.S., Mexico and Canada. The so-called USMCA replaces the North American Free Trade Agreement, or NAFTA, which was implemented in 1994.
But the Covid-19 pandemic has upended trade flows across the globe this year, and it remains to be seen if the USMCA will help shrink the U.S. trade gap.
Joel Naroff of Naroff Economics said that while the U.S. sold more overseas in July, those exports are still 20% below their February level.
“The reopening of the economy has done what was expected, drawn in a lot of goods from the rest of the world,” Naroff wrote, noting exports are less than three-quarters the level of imports. “I expect the deficit to widen a little more over the next two months, so look for trade to greatly restrain third quarter growth.”