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Oct 5, 1:50 PM EDT

US trade deficit in August rises 3 percent to $40.7 billion

Review of U.S.-China Trade
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China's exports last month post biggest drop since February

US trade deficit in August rises 3 percent to $40.7 billion

WASHINGTON (AP) -- The U.S. trade deficit rose in August as a flood of imports offset the best showing for exports in 13 months. The politically sensitive deficit with China rose to the highest level in 11 months.

The trade deficit increased 3 percent to $40.7 billion, up from a gap of $39.5 billion in July, the Commerce Department reported Wednesday.

Imports jumped 1.2 percent to $228.6 billion, reflecting big increases in shipments of foreign oil, autos and commercial aircraft. Exports were up 0.8 percent to $187.9 billion, the fourth straight monthly increase and the highest level in 13 months.

Analysts are hopeful that export sales will pick up after a rough two years when American producers had to battle a rising dollar that made their products costlier overseas.

"Exports are beginning to show signs of life as the drag from the dollar's surge in 2014 and 2015 begins to fade," said Paul Ashworth, chief U.S. economist at Capital Economics. He predicted that the rise in exports would contribute to overall growth in the July-September quarter.

The deficit with China increased 3.5 percent to $33.9 billion, the highest level since September 2015. So far this year, America's deficit with China, the largest with any single country, is running 5.7 percent below last year's level.

Republican presidential nominee Donald Trump has accused China of engaging in unfair trade practices which he says have cost millions of American jobs. He has threatened to impose punitive tariffs on Chinese imports to force them to reform their policies.

The trade deficit is the difference between what America exports for sale abroad and imports for consumption in the United States. So far this year, the deficit is running 1.3 percent lower than the same period last year. The deficit in goods and services totaled $500.4 billion, trimming 0.6 percentage point from overall growth of 2.6 percent in 2015.

Growth this year is expected to be even slower given a weak start which has seen the economy barely expanding at an anemic rate of 1 percent, as measured by the gross domestic product, in the first half of the year.

However, analysts believe growth will rebound in the second half as continued solid gains in employment help to boost consumer spending. They are looking for a declining trade deficit to help boost GDP growth to around 3 percent in the July-September period.

For August, oil imports rose 2.2 percent to $12.9 billion with the volume of crude oil imports climbing to the highest level since January 2014. Imports of capital goods rose 2.4 percent, reflecting increased foreign purchases of civilian aircraft, telecommunications equipment and computers.

The rise in exports reflected an increase in U.S. shipments of autos and medical equipment which offset a drop in sales of American-made aircraft.

Trump has said he would exit from the North American Free Trade Agreement with Canada and Mexico if it is not improved and will kill the pending Trans-Pacific Partnership trade agreement between America and 11 Pacific Rim nations.

Both Trump and Democratic nominee Hillary Clinton have attacked the TPP agreement which the Obama administration negotiated and the president still hopes to get through Congress in a lame duck session after the November election.

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