Kristian Rouz – A new report from the Commerce Department reveals the US trade deficit has declined for the third consecutive month in May, reflecting a massive surge in US exports. Additionally, the concerns of possible disruptions in international trade in the wake of tariff action in the US, EU, and China, have weighed on the forward-looking projections of global trade volumes.
READ MORE: Europe Must Prepare For the Worst With Trump — EU Chief Tusk
The Commerce Department said the goods trade deficit last month shrank 3.7 percent to $64.8 billion due to a solid surge in US exports. Outbound shipments increased 2.1 percent amid expansion in US exports of oil and manufactured goods, whilst imports posted a negligible gain of 0.2 percent.
Exports came in at $143.6 billion, which is $2.9 billion more than in April, whilst imports ticked up to $208.4 billion – just $400 million above their April value.
"The deficit is back to the pre-hurricane level. Imports still look high relative to the pre-hurricane trend, a June dip is a decent bet,” Ian Shepherdson of Pantheon Macroeconomics stated.
Additionally, the Commerce Department said US wholesale inventories rose 0.5 percent month-on-month in May, to $633.2 billion. This is also a 5.9-percent increase from a year ago. Retail stockpiles rose 0.4 percent month-on-month, and 2.3 percent from last May to $635.5 billion.
The figures suggest the recent changes in US foreign trade will contribute to second-quarter GDP growth, which is currently expected to increase 4.5-4.7 percent year-on-year. US GDP growth rate for the first quarter of this year came in at 2.2 percent due to a seasonal slowdown at the beginning of the year.
Despite the narrowing trade deficit, the US is still in for yet another massive yearly deficit for the whole of 2018, as imports in consumer goods remain strong, whilst the strength of the dollar is preventing US exports from gaining a sustainable competitive edge in international trade.
READ MORE: How Trump's Trade War is Accelerating EU-China Rapprochement
In a separate report, the Commerce Department observed an unexpected drop in US business investment in May, as orders for capital goods and shipments declined slightly.
"Trade tensions are a risk as the Trump administration looks to be ramping up its protectionist policies, especially against China and (Europe),” Gregory Daco of Oxford Economics said.
However, the Commerce Department also upgraded its report for the previous month, pointing to a moderate increase in business expenditures in the second quarter.
Economists say the US economy is currently in good shape despite global trade woes, as low unemployment, robust hiring, and high consumer confidence are all expected to drive domestic demand for goods and services.
Trade policies of the Trump administration are expected to produce a massive realignment in global supply chains, which could weigh on the overall volumes of international trade in the near-to-medium-term. Still, even the latest exchange in customs duties is unlikely to derail global economic expansion, although inflationary pressures have recently been increasing across several major economies.
