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The U.S. goods trade deficit with China, a focus of President Donald Trump’s “America First” agenda, dropped to a five-year low in March amid a surge in exports, including soybeans.

The report from the Commerce Department on Thursday came amid escalating trade tensions between Washington and Beijing. Trump threatened on Sunday to raise tariffs on $200 billion worth of Chinese goods from 10 to 25 per cent on Friday. China has promised to retaliate if the duties were imposed.

Reuters, citing U.S. government sources, reported on Wednesday that China had backtracked on almost all aspects of a trade deal between Washington and Beijing. China on Thursday appealed to the United States to meet it halfway to salvage a deal that could end their trade war.

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The politically sensitive goods trade deficit with China decreased 16.2 per cent to an unadjusted $20.7 billion, the lowest level since March 2014, also as imports from the world’s No. 2 economy fell 6.1 per cent. Exports to China jumped 23.6 per cent in March.

When adjusted for seasonal fluctuations, the shortfall with China tightened to $28.3 billion. That was the smallest since April 2016 and followed a $30.1 billion gap in February.

Washington last year imposed tariffs on $250 billion worth of goods imported from China, with Beijing hitting back with duties on $110 billion worth of American products.

The overall trade deficit increased 1.5 per cent to $50.0 billion in March. Economists polled by Reuters had forecast the trade shortfall widening to $50.2 billion in March. The goods trade deficit increased 0.7 per cent to $72.4 billion in March.

The trade data have been volatile in recent months amid big swings between exports and imports because of the United States’ conflicts with trading partners. The goods trade deficit with Mexico hit a record high of $9.5 billion in March.

When adjusted for inflation, the overall goods trade deficit increased $0.5 billion to $82.1 billion in March.

The dollar was trading lower against a basket of currencies, while U.S. Treasury prices rose. Stocks on Wall Street fell.

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MODERATE INFLATION

The government reported last month that trade contributed 1.03 percentage points to the economy’s 3.2 per cent annualized growth pace in the first quarter. But the Commerce Department in another report on Thursday said wholesale inventories were weaker than initially thought in March.

That suggests the advance GDP growth estimate could be trimmed when the government publishes its revision later this month. The economy continued to expand early in the second quarter, with mild inflation pressures and the labour market still tightening.

Initial claims for state unemployment benefits decreased 2,000 to a seasonally adjusted 228,000 for the week ended May 4, the Labor Department said in other data on Thursday.

The producer price index for final demand increased 0.2 per cent last month after jumping 0.6 per cent in March. In the 12 months through April, the PPI increased 2.2 per cent, matching March’s rise, the department said in another report.

Price pressures have remained moderate despite a strong economy and the tightening labour market. The U.S. central bank last week kept interest rates unchanged and signalled little desire to adjust monetary policy anytime soon. Fed Chairman Jerome Powell said inflation had been “somewhat weaker,” but believed the softer readings “may wind up being transient.”

The rise in the overall trade deficit in March came as both exports and imports increased. Goods exports increased 1.4 per cent to $141.7 billion. Exports of industrial supplies and materials rose by $1.7 billion, while those of soybeans gained by $0.5 billion.

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But shipments of civilian aircraft fell $0.7 billion in March. Commercial aircraft exports are likely to decline further after Boeing suspended deliveries of its troubled 737 MAX aircraft. The MAX planes have been grounded indefinitely following two deadly crashes.

Goods imports rose 1.2 per cent to $214.1 billion in March. Crude oil imports increased by $1.4 billion. Crude oil imports rose to 195.9 million barrels from 173.7 million barrels in February. Imported oil prices averaged $53.1 per barrel in March, up from $46.89 in February.

Food imports hit an all-time high of $13.1 billion. Consumer goods imports, however, fell amid declines in imports of cellphones and other household goods. Imports of industrial supplies and materials increased by $2.4 billion.

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