The May goods and services trade deficit fell by 7.3% to $68.9 billion, the second lowest monthly deficit since March, when it was $60 billion, the Bureau of Economic Analysis said on Thursday. One of the big takeaways yet again from this month’s numbers show a declining deficit with China.
All told, the goods deficit for the month was $91.25 billion, bringing the Jan-May goods deficit to $450.41 billion. At this rate, it looks like the U.S. goods deficit will still crack $1 trillion if the monthly gap remains around $90 billion. The U.S. broke the $1 trillion mark for the first time in 2021.
See the CPA Trade Database for downloadable, interactive charts.
Of interest here is the China-U.S. goods deficit. May figures were $25.21 billion, up from $20.28 billion in April but much lower than the $31.5 billion registered in May 2022. It is increasingly clear that a soft decoupling is happening with mainland China, with a lot of the benefits going to Vietnam, as CPA noted in a report by the economics team published on June 28. However, even Vietnam saw a decline in exports to the U.S. in May, with the goods gap coming in at $8.35 billion versus $10.64 billion in May 2022. Month-over-month deficits rose just like China, with Vietnam’s April deficit with the U.S. coming in at $7.77 billion.
We could be seeing a slowdown in the U.S. economy, though these predictions have not produced any fruits at this time.
“The U.S. is steadily decoupling from China thanks to the China tariffs and the corporate sector aggressively seeking out new manufacturing locations. Our trade deficit is significantly below last year. Last year’s imports were explosively strong due to post-pandemic catch-up by U.S. consumers. But the underlying trade imbalance remains and the long-term trend is that it will continue to grow, absent some global action such as foreign exchange realignment, global tariffs, or broad-based support for domestic manufacturing industry.”
Biggest Trade Deficit Nations
China remains our biggest trade deficit nation. If the European Union were one country, they would be in second place with a May U.S. deficit with the EU of $18.34 billion versus $16.31 billion in April. These figures are similar to those posted in 2021.
These were the top five deficit nations for May and for the year.
What We Buy/What We Sell
The top items exported and imported remained steady throughout the years and months, led by pharmaceuticals, cars, and auto parts. The U.S. has a yawning trade gap in each of these areas, importing more than it exports. This suggests that either demand for these goods is so great that the U.S. needs to look abroad or the U.S. is not producing those goods, in favor of overseas suppliers. The latter is likely the case.
The No. 1 exported item by value for the month of May was, once again, pharmaceuticals. The U.S. exported $8.179 billion worth of pharmaceuticals in May, and imported $14 billion.
For automobiles, May exports totaled $5.43 billion and imports were $16.4 billion.
The U.S. is widely considered a key manufacturer and innovator of advanced technology. But based on Bureau of Economic Analysis figures, only weapons such as ammunition and large defense contractor items like fighter planes, coupled with aircraft, are in surplus. The U.S. has a deficit in all advanced technologies. The May deficit in advanced tech manufactured goods – be it high speed computer networks for wireless communications, or a Boeing aircraft – was $17.61 billion, or $79.46 billion from Jan-May 2023. The U.S. trade gap in advanced tech with China was $7.31 billion in May. That’s just under the $7.8 billion combined from the next three deficit nations – Ireland, Mexico and Taiwan.
The automotive industry is an important part of the U.S. trade deficit.
The U.S. exported $16.75 billion worth of passenger vehicles and auto parts and imported $38.23 billion.
The USMCA continues to make Mexico the hub of American automotive manufacturing. The May deficit for the sector was $10.93 billion and is $51.29 billion for the year so far.
Also worth noting, the Korea-U.S. Free Trade Agreement has done nothing to narrow the gap at all in automotive with Korea. The May trade deficit with South Korea in passenger cars and auto parts combined was $3.09 billion and is $14.99 billion between Jan-May 2023.
Section 301 Tariffs Reduced U.S. Dependence on China, Decoupling Has Begun
