US trade deficit widens in May as Trump tariffs fuel uncertainty

CNA

2 days ago

WASHINGTON: The US trade deficit widened more than expected in May, with both imports and exports declining as US President Donald Trump's tariffs sent shock waves through the economy and snagged supply chains.
Trade data published Thursday (Jul 3) showed the world's biggest economy logged an overall trade gap of US$71.5 billion, in the month after Trump imposed a 10 per cent duty on most trading partners before pausing steeper rates for dozens of these economies.
This was an expansion from the US$60.3 billion deficit in April, according to the Commerce Department.
The figures, however, came as both imports and exports shrank in May.
US imports were down 0.1 per cent to US$350.5 billion, as incoming shipments of goods ticked down.
Imports of consumer goods dropped by US$4.0 billion, with those of certain apparel and toys both sliding, although imports of autos and parts climbed.
US exports, meanwhile, dropped by 4.0 per cent to US$279.0 billion, with declines largely seen in industrial supplies and materials, the report showed.
US trade has been rocked by Trump's sweeping tariff announcements since the start of this year, as companies stocked up to get ahead of expected levies and halted shipments to wait for high duties to come down.
This was the case when Trump doubled down on tariffs impacting goods from China in April. Tit-for-tat tariffs on both sides surged to prohibitive levels before Washington and Beijing de-escalated tensions in mid-May.
Trade is "at risk of introducing more volatility in the data," said Bernard Yaros, lead US economist at Oxford Economics.
This is especially as the world heads towards a Jul 9 deadline when Trump's pause on higher duties for dozens of economies including the European Union, Japan and South Korea is due to expire.
"A worst-case tariff outcome this month would apply further downward pressure on imports," Yaros warned.
The path forward is unclear and he expects levels to land somewhere between their current position and the steep levels initially unveiled in April.
He cited a US deal with Vietnam announced Wednesday where the country averted the harsh tariff rate Trump first announced.
But Yaros maintains that "the true health of the economy will be better distilled by the consumer and business spending figures, which are showing signs of weakness."
Carl Weinberg, chief economist at High Frequency Economics, expects Federal Reserve policymakers to look past the fluctuations in inventories as they decide on further interest rate adjustments.
"There is not much in this report to alter the Fed's view that the economy remains strong," he said.