Chart of the Week: Import slump slashes US trade deficit

The US trade deficit in goods almost halved to $87.6 bn in April, as imports slumped 19.8% on the back of increased tariffs. Imports had previously increased rapidly since the end of last year due to front-loading. April marked peak trade uncertainty, with the average US effective tariff rate at one point rising by more than thirty percentage points, and the levy on China at one point up 145 percentage points. Given the tariff shock, imports fell sharply from $344 billion to $276 billion. Exports rose by 3.4%. Trade uncertainty remains elevated: at the time of writing, the effective US tariff rate is around 13 percentage points higher than at the start of the year. Some in the US will no doubt cheer the rapid shrinking of the trade deficit. However, such a large monthly drop in imports does not come for free. If the import slump is sustained over time, US businesses and households may eventually face less choice or higher prices, or both. Admittedly, inventories data suggest that firms still have stockpiles to run through after front-running the tariff increase. That may be a temporary reprieve. The bigger picture, as we noted in a previous Chart of the Week, is that the US has played the role of consumer of last resort for a long time, with a large negative position on net external assets the result. It may have a reason to be upset with the status quo. A more sustainable global rebalancing would also involve increased demand from those creditor economies. For the moment, that does not appear to be forthcoming.

Refresh this chart in your browser | Edit the chart in Datastream

The views expressed in this article are the views of the author, not necessarily those of LSEG.