The U.S. trade deficit saw a contraction in June due to a notable decline in consumer goods imports, with the trade gap with China reducing to its lowest level in over 21 years. This development serves as the latest indication of the impact that President Donald Trump is having on global commerce through his extensive tariffs on imported goods.
Trump’s tariffs are affecting the U.S. economy in ways that extend beyond trade. A measure reflecting activity in the expansive services sector fell to stall-speed in July, as businesses reported that the influx of new import taxes is raising costs and complicating business planning.
According to the Commerce Department’s Bureau of Economic Analysis, the overall trade gap narrowed by 16.0 percent in June to $60.2 billion. This report followed a revelation that the goods trade deficit plunged by 10.8 percent to its lowest point since September 2023, indicating that the full deficit, including services, is also at its narrowest since that time.
Impact on GDP rebound
Exports of goods and services totaled $277.3 billion, down from over $278 billion in May, while total imports reached $337.5 billion, a decrease from $350.3 billion. Notably, imports of consumer goods and industrial supplies and materials were the lowest since the height of the COVID-19 pandemic, whereas exports of capital goods achieved a record high.
The reduced trade deficit significantly contributed to the rebound in U.S. gross domestic product during the second quarter, as reported last week. This improvement reversed the drag experienced in the first quarter when imports surged as consumers and businesses rushed to make purchases ahead of the implementation of Trump’s tariffs.
The economy expanded at a 3.0 percent annualized rate in the second quarter after contracting at a 0.5 percent rate in the initial three months of the year. However, the headline figure obscures underlying signs that activity is weakening.
Last week, Trump, prior to a self-imposed deadline of August 1, issued numerous notices to a multitude of trading partners regarding higher import taxes that are set to be enforced on their goods exports to the U.S.
Read more: U.S. reduces tariff on South Korean imports to 15 percent, down from 25 percent
Upcoming tariff changes
With tariff rates ranging from 10 percent to 41 percent on imports to the U.S. scheduled to take effect on August 7, the Budget Lab at Yale now estimates that the average overall U.S. tariff rate has surged to 18.3 percent, the highest level since 1934. This marks a considerable increase from the previous range of 2 percent to 3 percent prior to Trump’s return to the White House in January.
The goods deficit decreased by $11.4 billion to $85.9 billion, while the services surplus saw a slight increase of $0.1 billion to $25.7 billion. This change reflects a substantial reduction in imports of pharmaceuticals and consumer goods, which fell by $9.6 billion and $8.4 billion, respectively. Meanwhile, exports of both capital and consumer goods demonstrated gains, with capital goods exports reaching unprecedented levels. The trade balance with China showed notable improvement, as exports to China increased by $3.1 billion while imports from China decreased by $1.4 billion, resulting in the lowest deficit with China in over twenty years. Imports from India dropped sharply by $6.7 billion, further contributing to the overall decline in imports.
