How Tariffs Might Be Impacting the U.S. Trade Deficit

Yahoo

05-08-2025

Key Takeaways
The U.S. trade deficit fell for the third month as President Donald Trump's tariff policies began taking hold.
Census Bureau data showed that both imports and exports declined in June.
Economists said that the recent decline mainly reflects normalization in international trade as businesses work through the imported inventory they stocked up on ahead of tariff announcements.
While imports from China fell, trade from nearby countries picked up to fill the void.President Donald Trump has said that one of the goals of higher tariffs was to close the U.S. trade deficit with other nations. So far, things appear to be moving in that direction, as the trade deficit in June declined to its lowest level in nearly two years.
According to Census Bureau data released Tuesday, the U.S. trade deficit in goods and services was $60.2 billion in June, down more than 16% from May. It's the lowest trade deficit since September 2023.
However, tariffs may not be affecting the trade deficit in the way some expected so far. Economists from Wells Fargo said some of the data indicate an 'unwinding of behavioral effects."
After Trump unveiled his tariff plans earlier this year, businesses rushed to import products before higher import taxes could be applied, sending the trade deficit soaring. Now, with the tariffs largely set, the trade deficit is beginning to fall back to normal levels.
'Businesses pulled forward demand in Q1, resulting in a massive import surge. With a surplus of product and inventory on hand, imports fell in all three months of the second quarter, ' wrote Wells Fargo economists Shannon Grein and Tim Quinlan.
Imports From China Decline, as Do U.S. Exports
Still, imports of Chinese products declined by nearly 7% in June despite a trade truce that lowered tariffs. Since the start of the year, the share of imports from China has been more than cut in half, though trading with countries like Indonesia, Malaysia and Taiwan has increased, the data showed.
'Other trading partners in Asia have mostly filled the void, increasing their share by roughly the same amount,' said Matthew Martin, senior economist at Oxford Economics.
While overall imports were lower by 3.7% in June, U.S. exports also took a step back.
'Exports are not poised to record strong growth going forward, but stronger foreign currencies and an opening up of foreign markets may bolster U.S. exports—though admittedly this will take time to play out,' wrote Nationwide Financial Markets Economist Oren Klachkin.
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