U.S. trade gap edges up; deficit with China at 11-month high

By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. trade deficit increased less than expected in July as both exports and imports fell, suggesting that trade could contribute to economic growth in the third quarter.

The Commerce Department said on Wednesday the trade gap rose 0.3 percent to $43.7 billion. June's trade deficit was revised down slightly to $43.5 billion from the previously reported $43.6 billion.

Economists polled by Reuters had forecast the trade shortfall widening to $44.6 billion in July. When adjusted for inflation, the trade deficit increased to $61.6 billion from $60.8 billion in June. The so-called real goods deficit in July was below the second-quarter average of $62.4 billion.

While that suggests trade could add to gross product in the third quarter, economists at Wrightson ICAP cautioned that Hurricane Harvey could significantly impact commodity prices and trade volumes, and push up the trade deficit in September.

The politically sensitive U.S.-China trade deficit increased to an 11-month high in July. That ongoing deficit has grabbed the attention of President Donald Trump, who has blamed it for helping to decimate U.S. factory jobs as well as stunting U.S. economic growth.

Trump, who argues that the United States has been disadvantaged in its dealings with trade partners, has ordered the renegotiation of the North American Free Trade Agreement (NAFTA), which was signed in 1994 by the United States, Canada and Mexico.

On Saturday, Trump threatened to withdraw from a free trade deal with South Korea.

Prices of U.S. Treasuries were little changed by the data on Wednesday. U.S. stock index futures were trading higher while the dollar was weaker against a basket of currencies.

The government reported last month that trade contributed two-tenths of a percentage point to the economy's 3.0 percent annualized growth pace in the second quarter.

In July, real goods exports slipped despite petroleum exports hitting a record high.

Exports of goods and services fell 0.3 percent to $194.4 billion in July. Exports of motor vehicles and parts fell by $0.6 billion, but exports of capital goods rose by $0.9 billion.

Exports to China increased 3.5 percent, while those to the European Union tumbled 9.8 percent.

Imports of goods and services slipped 0.2 percent to $238.1 billion in July. Imports of motor vehicles and parts fell by $0.8 billion and crude oil shipments declined by $1.0 billion.

Imports of goods from China increased 3.1 percent. The U.S.-China trade deficit increased 3.0 percent to $33.6 billion in July, the highest level since August 2016.

The United States saw a 3.7 percent drop in goods and services imported from the EU in July. The trade deficit with the EU increased 7.9 percent to an eight-month high of $13.5 billion.

(Reporting by Lucia Mutikani; Editing by Paul Simao)