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As U.S. Weighs Trade Pact, Trade Deficit Grows

trade portWith the Trans-Pacific Partnership heading to Capitol Hill for ratification, U.S. policymakers will weigh the proposed free-trade zone in an increasingly challenging trade environment.

The strong dollar, a weaker global economy and low energy prices have all worked against the United States when it comes to trade, said Bob Hughes, senior research fellow at the American Institute for Economic Research. Today, the U.S. posted a trade deficit for the month of August of $48.3 billion, higher by $6.5 billion over July.

The wider deficit is due to the trade of goods, he said. Although the United States economy has been resilient in recent years, pushing imports of foreign goods up, a more challenging economic environment abroad has weakened foreign demand for this country’s goods, he said. With the strong dollar, foreign goods are less expensive here while U.S. goods are more expensive abroad, he said. And low energy prices are suppressing how much foreign customers are paying for products refined in the United States, he said.

While goods had a $6.6 billion increase in the trade deficit (to $67.9 billion), U.S. services saw a $100 million increase in the trade surplus (to $19.6 billion), largely due to foreign demand for U.S. financial services, as well as tourists visiting the United States from abroad, Hughes said.

The new ISM surveys also told the same story. While the manufacturing index fell to just above neutral, the non-manufacturing (service) index still show solid expansion, Hughes said.

“The United States continues to be a beacon of hope in a slowing global economy,” Hughes said. “These factors are impacting our data, but at this point we don’t see a high probability of recession.”

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