US trade deficit narrows to smallest since 2016

The US trade deficit narrowed in May to its smallest since October 2016 on a jump in exports of soybeans and aircraft amid the threat of retaliatory tariffs.

The gap decreased 6.6% to $43.1bn, from a revised $46.1bn in the prior month, Commerce Department data showed on Friday. Exports of goods and services climbed to a record high, outpacing a pickup in imports.

The trade data will remain closely watched for signs of any fallout from what threatens to become a protracted trade war with China, Europe and Canada. At the same time, rising demand by US households and businesses means purchases of foreign- made goods will probably remain resilient in coming months.

President Donald Trump has already imposed levies on imported steel, aluminum, solar panels and washing machines. Tariffs on $34bn of Chinese goods took effect Friday at 12:01 a.m. in Washington, spurring retaliation from China.

The median estimate of economists surveyed by Bloomberg called for a May trade deficit of $43.6bn.

The report also showed the trade gap with China, the world's second-biggest economy, widened to $32bn in May from $30.8bn.

Overall exports increased 1.9% to $215.3bn as soybean shipments overseas almost doubled to $4.1bn. Exports of civilian aircraft, a category that tends to be volatile, rose $1.9bn in May.

Imports rose 0.4% to $258.4bn, boosted by a record value of capital goods shipments from overseas.

Improvement in the trade gap may be a positive for second- quarter growth. Net exports subtracted 0.04 percentage point from gross domestic product growth of 2% over the January-to-March period, according to revised figures, while previous estimates had shown a modest contribution.

Other details

• After eliminating the influence of prices, which renders the numbers used to calculate GDP, the trade deficit shrank to $75.3bn, the smallest since March 2017, from $77.5bn in the prior month.

• Exports and imports of goods accounts for about three-fourths of America’s total trade; the US typically runs a deficit in merchandise trade and a surplus in services.