As June Trade Deficit Falls, U.S. Still On Track to Repeat $1 Trillion Trade Gap with World

The deficit in goods and services for June fell by 4.1% to $65.5 billion, marking the second month in a row where the deficit has been in decline, the Bureau of Economic Analysis said on Tuesday. Much of this may be due to the economic slowdown economists have been predicting for months now. Either way, with the six-month goods gap with the world at $538.3 billion, unadjusted, it looks like the U.S. is in store for its third straight year of a trillion dollar-plus trade deficit with the world.

The goods and services deficit up to June is $409.21 billion, down 22.3 percent from the same period in 2022. Exports increased $37.6 billion or 2.5 percent while imports decreased $80.1 billion or 4.0 percent.

Our goods and services trade deficit is reduced by financial services and intellectual property – which means overseas buyers of American stocks and bonds, and people paying licensing and other fees for American software.

For goods, the June deficit was $88.18 billion, down from $90.98 billion in May. The record for the year was in April, which saw a monthly goods deficit of over $96 billion, seasonally adjusted.

The U.S. has had a $1 trillion goods deficit with the world since 2020.

See CPA’s Trade Database for up-to-date charts on trade flows.

Shifting Trade. But China Still Biggest Deficit Source

This summer has been full of headlines about Mexico surpassing China as the No. 1 source of imported goods.  Imports from China were valued at $34.33 billion in June, down from $35.89 billion in May. Mexico imports were flat at $41 billion.  Mexico exported some $236 billion worth of goods to the U.S. in the year to  June, while China exported $202.96 billion.  Part of this downgrading of China in American supply chains is due to tariffs and geopolitical uncertainties. Companies are near-shoring and reshoring supply chains closer to home. Naturally, low cost Mexico would be a big beneficiary of that trend.

Combined, Mexico and Canada have comparatively “balanced” trade with the U.S. The U.S. deficit with Mexico and Canada for June was $17.6 billion. But compare that to the European Union at $19.13 billion and China at $24.11 billion for June.

Year-to-date ending in June, for the goods trade, the biggest source of our trade deficits are China ($130.37 billion), Mexico ($75.49 billion) and Vietnam ($47.92 billion). Vietnam has successfully positioned itself as a new solution to China offshoring. The country is investing some $8 billion to expand two of its biggest ports.

Top Five Exports*

These top items rarely change from month to month. Some of our biggest exports are also our biggest imports, showing the trade gap between the two items. While not an exact comparison (pharmaceuticals here also mean active pharmaceutical ingredients and finished drugs), items such as passenger cars and car parts show the yawning gap between the U.S. auto industry and the rest of the world.

*All figures in billions of dollars.

Top Five Imports

Despite the Korea-U.S. Free Trade Agreement, the U.S. sold $217 million worth of passenger cars to South Korea and imported $3.76 billion worth in June. For the first six months of 2023, the U.S. sold $1.8 billion of passenger cars to South Korea and imported $20.3 billion.

Japan shares a similar picture.

But when it comes to the auto industry, Mexico takes the cake. The U.S. imported $83.5 billion worth of passenger cars up to June and exported $21.59 billion to Mexico for a trade deficit of nearly $60 billion in cars alone.

“The U.S. trade deficit continues to be a massive loss of demand for U.S. producers, on the order of 4% of GDP. There is no precedent for a nation to run large trade deficits for over 40 years, although some have said that the Spanish Empire did so in its declining years.” – Jeff Ferry, chief economist, CPA