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July 13, 2010    

US trade deficit widens in May

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by Kay Murchie

The Commerce Department today announced the US trade deficit widened in May to $42.3 billion (£28 billion) – an 18-month high.

Most economists had expected the deficit to fall to $39.4 billion.

The trade gap for goods and services grew 4.8% from $40.3 billion in April, the Commerce Department said.

The figures showed that imports rose 2.9% to an 18-month high of $194.5 billion, while exports grew 2.4% to $152.3 billion - a 19-month high.

Rising imports in the US, which were fuelled by consumer goods, motor vehicles, parts and engines as well as capital goods, suggest there is hope for global economic recovery, according to analysts.

In the meantime, the trade deficit with Canada, the biggest US trading partner, widened to $22.3 billion - the highest since October 2009.

This could see the US call for a rapid appreciation of the Chinese yuan currency.

Last week, a report issued by the US said China’s yuan remains undervalued but welcomed the loosening of its currency peg.

The US Treasury’s semi-annual currency report, which originally was due on 15 April, comes after mounting pressure on the People’s Bank of China to make its exchange rate more flexible against the US dollar.

The US has previously expressed dissatisfaction that China is keeping the value of the yuan low to help its exporters at the expense of overseas competitors.

Trade groups have argued that the yuan, also referred to as the renminbi, is kept up to 40% below what its value should be against the US dollar.

However, Beijing has previously said keeping the yuan stable is “an important contribution” to global recovery.

Prior to a summit of 20 leaders in Canada last month, Beijing loosened its two-year currency peg against the dollar and since that time, the yuan has risen 0.74%.

While the report did note that Beijing had made a “significant” move last month by ending a peg between the value of the yuan and the dollar, it declined to name China as a currency manipulator in the politically sensitive report.

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