U.S. Trade Deficit Narrowed Sharply (Again) in May, Big Net Plus for 2Q GDP

The U.S. trade deficit again narrowed sharply in May, shrinking $3.0 billion from $46.1 to $43.1 billion, a big net-positive for 2Q gross domestic product (GDP). This is the most narrow reading for the trade gap in 19 months.

The data for 2Q reflects the impact of the trade reciprocity initiative from the Trump Administration, and it clearly indicates at least some degree of short-term success.

In April, the U.S. trade deficit also narrowed sharply to $46.2 billion in April, another big net-positive for 2Q GDP. The U.S. Census Bureau and the U.S. Bureau of Economic Analysis (BEA) said the closing gap was driven by a surge in exports and May was an even better mix of good news for trade deficit hawks.

In May, exports were $215.3 billion, $4.1 billion more than exports in April, while imports were $258.4 billion, just $1.1 billion more than April imports.

Overall, the narrowing in the U.S. trade deficit in May was fueled by a decrease in the goods deficit of $2.6 billion to $65.8 billion and an increase in the services surplus of $0.5 billion to $22.7 billion.

Year-to-date, the goods and services deficit increased $17.9 billion, or 7.9%, over the same period in 2017. Exports increased by $84.5 billion, or 8.8%. Imports increased $102.4 billion or 8.6%.

The 3-month average goods and services deficit narrowed by $4.2 billion to $45.4 billion. Average exports rose $3.1 billion to $212.4 billion in May, while average imports fell $1.1 billion to $257.9 billion.

Year-over-year, the average goods and services deficit increased $0.2 billion from the three months ending in May 2017, highlighting what is clearly a recent change. Average exports increased $19.9 billion from May 2017, while average imports increased $20.1 billion from May 2017.

Mark Mobius, the famed investor and founder of Mobius Capital Partners LLP, said recently in an interview with CNBC that he agrees “completely” with the actions President Trump is taken to force concessions and a reduction in the U.S. trade deficit.

“I agree with him completely,” Mr. Mobius said, much to the surprise of the liberal commentators. “The U.S. has been taken for a ride — let’s face it — over the last 20 or 30 years. It’s time to start saying, ‘Look, there has to be some reciprocity between these two countries, because it’s just crazy to have this kind of deficit.’”

Politically-Sensitive Trade Deficits

The deficit with member nations in the Organization of the Petroleum Exporting Countries (OPEC) cartel decreased $3.1 billion to $0.2 billion in May, as exports increased $1.3 billion to $5.8 billion and imports decreased $1.9 billion to $6.0 billion.

The deficit with the European Union (EU) fell $1.3 billion to $11.9 billion in May, as exports increased $0.2 billion to $27.5 billion and imports decreased $1.2 billion to $39.3 billion.

The deficit with China rose $1.2 billion to $32.0 billion in May. Exports increased $0.6 billion to $11.7 billion and imports increased $1.8 billion to $43.7 billion.