Goods trade deficit narrows again as export growth outstrips gains in imports

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The US trade deficit in goods narrowed for the third consecutive month in May as improved export performance outweighed a modest rise in imports during the month.

The Census Bureau reported that the US economy’s goods deficit narrowed in April to -$64.8 billion dollars on a seasonally adjusted basis, from a revised -$67.3 billion in the previous month. This marks the third straight improvement in the US trade picture, and marks the smallest deficit for the economy since September of last year.

 Export growth climbed to a near seven-year high

Export growth climbed to a near seven-year high

Unlike the previous month however, where the fall in the deficit was driven by declines in exports and imports, the improvement in May’s trade deficit came mostly from a surge in exports. The value of exported goods rose a healthy 2.1% during the month, and are now up 13.4% from this point last year. Imports also increased in May, posting a modest 0.2% gain as year-over-year growth climbed to 8.4%.

 Total trade have been erratic in recent months but has generally increased

Total trade have been erratic in recent months but has generally increased

This is good news for both the economy overall and transportation companies. The falling deficit over the past few months likely means that international trade will contribute to accelerating GDP growth when 2nd quarter results are released next month. The value of total trade has been choppy over the past several months, but the general upward trend remains. This would suggest continued increases in demand for drayage, cross-border trucking, ocean, and air freight movements as long as this trend continues.

Trade policy starting to have some effects

Of course, the future of trade performance still largely hinges on trade policy. The government has taken on an increasingly protectionist stance over the past several weeks, with aggressive stances taken towards China, Europe, Canada, and Mexico.

The extent to which these policies actually come to fruition is still unclear, but there is some evidence that recent tariff proposals have begun to have some effect. Despite the overall gain in exports and imports, tariff-targeted categories such as industrial supplies and automobiles saw declines on both the import and export side in May.

This is only likely to worsen if current escalation in tariff threats actually takes hold in the second half of the year. With the Trump administration rescinding many of the previously-granted tariff exemptions over the course of this month, it will be interesting to whether the trend of growing trade volume will continue in upcoming months. 

Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.