Background on the US Trade Situation
The United States has been actively implementing stricter tariff policies, which have led to significant changes in its trade balance. In April, the US witnessed record surpluses in goods trading with Hong Kong, the United Kingdom, and Switzerland. However, it experienced record deficits with Vietnam, Taiwan, and Thailand.
Key Changes in Trade Balance
The US trade deficit drastically decreased in April, with an unprecedented drop in imports as anticipation of tariffs waned. This development could potentially boost economic growth in the current quarter.
According to the Commerce Department’s Office of Economic Analysis, the trade deficit shrank by 55.5% to $61.6 billion, the lowest level since September 2023. The March data was revised to show a historic maximum deficit of $138.3 billion, up from the previously reported $140.5 billion.
Economists surveyed by Reuters had predicted a deficit reduction to $70 billion. The goods trade deficit narrowed by 46.2% to $87.4 billion, the lowest since October 2023.
Impact on GDP
The widening trade deficit in the first quarter contributed to a significant portion of the 0.2% annualized GDP decline in the last quarter, as per the US Commerce Department. The trade gap subtracted 4.9 percentage points from the first-quarter GDP variation.
Although the deficit contraction implies that trade could substantially contribute to GDP this quarter, it largely depends on inventory levels. The inventory increase partially offset the deficit decline due to the stockpiling of imported goods.
Analysts suggest that inventory data, which is challenging to measure, might eventually show even greater US stockpiling in Q1 2025. This could lead to an upward revision of the GDP.
However, experts anticipate that trade and inventory effects will reverse in the second quarter, driving GDP growth. Thus, the best outlook for the US GDP in the first half of 2025 might come from averaging the first and second-quarter results.
Record Drop in Imports
In April, the US imported goods worth a record-breaking 16.3% less, totaling $351 billion.
Compared to March figures (non-seasonally adjusted), the US imported fewer goods from most of its major trading partners. Imports from the European Union fell by over $29 billion, while imports from Canada and Mexico decreased by more than $6 billion each. Imports from China dropped by $4 billion.
Export Growth
Meanwhile, US exports rose 3.0% to $289.4 billion, marking a new high. Goods exports increased by 3.4% to a record-breaking $190.5 billion, driven by a $10.4 billion surge in industrial supplies and materials—mainly finished metal products, non-monetary gold, and crude petroleum.
Record Surpluses and Deficits
The US recorded record surpluses in goods trade with Hong Kong, the United Kingdom, and Switzerland. However, it faced record deficits with Vietnam, Taiwan, and Thailand. The deficit with Canada was the smallest since April 2021.
Future Trade Implications
Despite the fluctuations in the trade deficit, tariffs, retaliatory trade measures, and other restrictions could impact both US exports and imports in the coming months. Consequently, trade’s overall role in the US economy might be affected.
Key Questions and Answers
- Q: What changes occurred in the US trade deficit in April?
A: The US trade deficit plummeted by 55.5% to $61.6 billion in April, the lowest level since September 2023.
- Q: How did imports and exports perform in April?
A: US imports dropped by a record 16.3% to $351 billion, while exports increased by 3.0% to $289.4 billion, reaching a new high.
- Q: Which countries saw record surpluses or deficits with the US in April?
A: The US registered record surpluses with Hong Kong, the UK, and Switzerland but faced record deficits with Vietnam, Taiwan, and Thailand. The deficit with Canada was the smallest since April 2021.
- Q: How might these trade changes affect the US GDP?
A: The reduced trade deficit could potentially boost US economic growth this quarter, but inventory levels and potential revisions in GDP data will play crucial roles.
