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MIND THE GAP: U.S. TRADE DEFICIT JUMPS IN MAY

Investors had to make do with one lonely bit of economic data on Tuesday, in the form of U.S. international trade.

The difference in the value of goods and services imported to the U.S. and those exported abroad USTBAL=ECI widened in May by 42.1% to $77.6 billion, according to the Commerce Department, or $900,000 narrower than analysts expected.

Under the hood, exports fell 3.2%, backing away from April's record. Imports—a GDP detractor— increased by 3.0%, an acceleration from the prior month's 2.0% increase.

With respect to capital goods, exports fell by 4.9% while imports grew by 0.9% to touch a record high.

"Beyond some idiosyncratic moves, exports in May suffered broad-based declines in inflation-adjusted terms, which we attribute to possible lagged impacts from the (Iran) conflict and some normalization in oil exports,” writes Oren Klachkin, economist at Nationwide. “Imports convey solid US domestic demand, though inventory frontloading likely lent a hand."

The closely watched goods trade deficit with China widened 38.5% to $14.39 billion.

Net trade has detracted from headline GDP for eight of the last 10 quarters.

On July 1, President Trump announced that the United States would not be extending the U.S.-Mexico-Canada free trade agreement, starting a 10-year wind-down of the USMCA deal, which was negotiated during Trump's first term to strengthen the 1994 NAFTA.

Since Trump's market-jarring "Liberation Day" tariff announcements in early April 2025, imports from Mexico have grown 24.4%, imports from Canada have risen 23.3%, and imports from China have decreased by 7.4%.

(Stephen Culp)

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