The U.S. trade deficit widened to $49.9 billion during June as exports of U.S. goods and services decreased by $1.989 billion and imports of foreign goods and services increased by $5.921 billion. Exports contribute to the economic output of a nation, so a decrease in exports leads to a reduction in gross domestic product, (GDP). With U.S. exports decreasing, then, depending on domestic demand, this could indicate that economic output of the U.S. is slowing.
An increase in imports, purchases of goods and services from abroad, denotes that the consumption of foreign goods rose during June. This is beneficial for the economies of the countries that the U.S. is importing from, but reduces the GDP of the U.S.
One way in which the trade balance gap would shrink is if the U.S. dollar were to depreciate relative to the currencies of its major trading partners. If this occurred then U.S. exporters would find their goods and services more competitively priced internationally. A rise in exports would positively contribute to U.S. GDP. A depreciating U.S. dollar would also lead to a decrease of imports as imported goods would be more expensive for American consumers. This too would be beneficial for U.S. GDP. There would be negative effects from a depreciating U.S. dollar however. Consumers would find that imported goods and services would be more expensive. With many goods that Americans purchase coming from abroad the cost of living could increase. In addition to an increase in the U.S. dollar price for imported goods, foreign investment in U.S. dollar denominated assets would likely decrease. This could lead to a smaller supply of loanable funds in the U.S. which would likely drive up interest rates in the country. Higher interest rates could then dampen domestic investment by businesses.
For more commentary on the August 11 international trade release see the Bloomberg article “U.S. Trade Deficit Unexpectedly Widens to $49.9 Billion in June.”
U.S. Trade Balance
(January 1999 – June 2010)