WASHINGTON (MarketWatch) — The U.S. trade deficit widened sharply by 18.8% in June to $49.9 billion, the Commerce Department said Wednesday. This is the largest trade gap since October 2008 when global trade activity froze in the wake of the collapse of Lehman Brothers. The trade deficit was much larger than the consensus forecast of Wall Street economists of a deficit of $42.5 billion. Imports rose while exports declined in June. The U.S. trade deficit with China widened to $26.2 billion in compared with $18.4 billion in the same month last year. This is the largest trade gap with China since October 2008.
A trade deficit is not a bad thing in-and-of-itself. The increase in imports signals an increase in activity in the U.S. That is good economic news isn’t it? Yes, because it shows the domestic economy is picking up. The decline in exports signals a slowdown in activity abroad. That is bad news. The difference between the two numbers, plus the capital account is the difference, aka the deficit. An economy makes and offers some things, and imports the rest. That mix is usually a result of specialization and comparative advantage. We stick with what we do best and shed the rest, leaving it to others.