Trade Deficit Rises 0.8% to $75 Billion In May; Goods Deficit Jan-May Beats Same Time Last Year at $477.15 Billion

The goods and services deficit for May rose a tad to $75 billion, up 0.8% from the previous month. Meanwhile, the goods deficit alone for January-May hit $477.15 billion up from $452.4 billion in the same period last year, the Bureau of Economic Analysis said on Wednesday.

May exports totaled $261.7 billion, $1.8 billion less than April exports and May imports were $336.7 billion, $1.2 billion less than April imports. The May increase in the goods and services deficit reflected an increase in the goods deficit of $0.9 billion to $100.2 billion. Year‐to‐date, the goods and services deficit increased $14.4 billion, or 4.2%, from the same period in 2023. There are no signs anywhere in the economy that the U.S. trade deficit will correct anytime soon, barring a severe downturn in the economy.

Tariffs on imports from China have had a minimal impact on the trade balance as China companies have outsourced manufacturing to Southeast Asia and, increasingly, to Mexico. For its part, Mexican companies and U.S. multinationals have also sourced from our South of the Border free trade neighbor.

The goods deficit with China increased $1.9 billion to $23.9 billion in May and the deficit with Mexico increased $1.3 billion to $14.1 billion in May. U.S. exports to Mexico decreased $0.7 billion to $27.4 billion while imports increased $0.7 billion to $41.6 billion.

Vietnam, which has become an outpost of Chinese multinationals as well as a way U.S. importers are sourcing elsewhere to avoid the Section 301 tariffs and China’s rising incomes, saw its trade deficit with the U.S. rise to $10.41 billion in May versus $9.2 billion in April.

Meanwhile, the rich European Union continues to sell us more than we sell them. The goods deficit with the EU was $19.66 billion in May or $92.6 billion for the year.  That’s greater than our trade deficit with free trade Mexico at $68.14 billion for the January-May period.

Last year’s trade deficit with the EU up to May 2023 was $82.6 billion.

The U.S. remains the hottest economy in the G7 countries.  So far, the U.S. has spent $1.30 billion on imported goods, up from $1.26 billion in the January-May 2023 period.

The U.S. will surpass a trillion-dollar goods deficit again this year barring a Black Swan event that hinders economic growth in the second half of the year.

“The trade deficit represents a trillion dollars of demand for goods lost to imports,” said CPA chief economist Jeff Ferry. “If that spending went instead to US goods, it would create revenue, investment, and several million good-paying jobs here at home.”