The U.S. trade deficit narrowed in February, yet the level of imports remained high after businesses front-loaded goods to avoid increased prices from tariffs. This situation keeps trade on track to potentially hinder economic growth in the first quarter.
The trade gap contracted 6.1 percent to $122.7 billion from a revised record of $130.7 billion in January, according to the Commerce Department’s Bureau of Economic Analysis (BEA).
Trump’s tariff plans and their implications
U.S. President Donald Trump stated on Wednesday that he would impose a 10 percent baseline tariff on all imports to the United States and higher duties on some of the country’s major trading partners. Fitch Ratings estimated that these new tariffs are the highest seen in over a century. Trump views tariffs as a means to generate revenue to offset his promised tax cuts and to rejuvenate a long-declining U.S. industrial base, although this perspective is not widely shared by economists.
Imports remain stable despite tariff concerns
Imports held steady at $401.1 billion in February after a sharp increase in the prior month, as businesses hurried to bring in goods before the duties took effect. Goods imports dipped by 0.2 percent to $328.9 billion. This decline was influenced by a $4.2 billion drop in industrial supplies and materials, primarily due to reduced imports of finished metal shapes and nonmonetary gold.
Industrial supplies had surged in January, contributing significantly to the worsening trade deficit. The increase in supplies was attributed to finished metal shapes and gold.
Consumer and capital goods imports reach new heights
Consumer goods imports rose by $2.4 billion to an all-time high, propelled by cellphones, household items, and pharmaceutical preparations. Imports of capital goods climbed $1.0 billion to a record high, driven by increases in computers and medical equipment, although imports of civilian aircraft saw a decline.
Imports of services increased by $0.5 billion to a record high of $72.2 billion, with notable rises in travel services and charges for intellectual property usage.
Read more: Trump announces 10 percent global tariff, higher rate for trade-surplus nations
Exports see significant growth
Exports surged by 2.9 percent to a record high of $278.5 billion. Goods exports soared by 4.8 percent to $181.9 billion. Exports of industrial supplies and materials increased by $3.0 billion, largely due to nonmonetary gold. However, fuel oil exports decreased.
Exports of capital goods grew by $2.7 billion to a record high, driven primarily by computer accessories and civilian aircraft. Exports of motor vehicles, parts, and engines also rose by $1.6 billion, although other goods exports fell by $1.3 billion. Non-petroleum exports reached an all-time high.
Exports of services experienced a decline of $0.4 billion to $96.5 billion, with reductions in transport, travel, and government goods and services, although financial services exports increased.
Inflation-adjusted trade deficit trends
The inflation-adjusted goods trade deficit decreased by 4.8 percent to $135.4 billion. While gold has significantly contributed to the surge in imports this year and will be excluded from the national accounts, economic growth is likely to have slowed sharply in the first quarter.
Gross domestic product estimates for the January-March quarter are largely below a 0.5 percent annualized rate, indicating a high probability of contraction. The economy had grown at a pace of 2.4 percent in the October-December quarter.
