The U.S. trade deficit improved to $43.1 billion in May from $46.1 billion in April, the smallest deficit since October 2016.
Nominal exports rose 1.9%, led by food and beverage exports (soybeans), which were up a robust 14.1%. Imports rose a smaller 0.4%, following two months of declines. Capital goods saw the strongest import growth, up 3.6%, offset by falling automotive (-1%) and consumer goods (-0.9%) imports.
Adjusted for inflation, real goods exports rose 1.7%, while real goods imports were up 0.2%.
Key Implications
Tariffs and the threat of tariffs are already distorting international trade figures as businesses try to get ahead of the trade action. For the moment, international trade is helping the U.S. economy at the same time that domestic demand is running full bore. With a strong gain in exports and weak import growth, net exports look to add at least a percentage point to second quarter real GDP growth, enough to push it past the 4% mark.
Import weakness is unlikely to last, given the strength in domestic spending and a strong U.S. dollar, and some of the recent export strength is likely to reverse as trade barriers come into effect. Indeed, tariffs on steel and aluminum and now $34 billion in Chinese goods, and reciprocal retaliatory measures against U.S. goods will cloud the trade picture over the foreseeable future.
