- The U.S. trade deficit lessened somewhat to $50.8bn in April from a downward revised $51.9bn in March (prev: $50bn). The report was in line with consensus forecast of the trade deficit. (Note: this release includes historical revisions going back to 2014. For full details please see the full report from the U.S. Census Bureau).
- Trade deficits with most major trading partners widened in the month, with the exception of Mexico.
- Exports dropped 2.2% m/m, more than reversing gains reported in the prior two months. The decline was generally broad based, with capital and automotive goods experiencing greatest monthly declines in excess of 5%. The decline in capital goods was largely due to lower shipments of civilian aircraft. Food and beverage exports were up 1%. On a volumes basis, goods exports were down 3.4% in April, the first decline of this year.
- Import performance was similar to exports. After a strong March, all major categories of imported goods declined in April. Capital goods and automotive imports saw the largest drop, both in excess of 3%. About half of the decline in capital goods imports was due to a fall in semiconductor purchases from abroad. On a volumes basis, goods imports fell 2.6%, marking the third monthly decline in volumes so far this year.
- Services fared similar to goods, with exports falling 0.3% in April.
Key Implications
- With trade tensions escalating, April’s report is likely the last report this year that will be largely unaffected by rising tariffs. Last month the U.S. administration raised its tariff on about $200bn in imported goods from China to 25% from 10%, with the tariff taking full effect at the start of June. On Monday, the U.S. administration is expected to enact a 5% tariff on $350bn in imported goods from Mexico, although talks are underway with Mexican authorities that may delay or eliminate the threat. While this latest wave of tariffs is unlikely to cause large disruptions in trade flows, they are likely to still cause some disruptions to global value chains. For example, the U.S. automobile industry is heavily integrated with Mexican automobile supply chains, with parts and components passing across borders multiple times. Although small, a 5% tariff is likely to raise costs along the supply chain, leading to higher car prices for consumers.
