US trade deficit narrows sharply amid unwinding of temporary import surge

Summary

The temporary surge in imports as businesses pulled-forward demand to get ahead of tariffs has run its course. The U.S. international trade deficit narrowed sharply in April as a result and suggests a big boost to Q2 growth from net exports.

Going in reverse

The sharp narrowing in the April U.S. international trade deficit tells us the temporary first-quarter splurge by businesses pulling-forward demand to get ahead of tariffs has run its course. The overall deficit is now $76.7 billion smaller than where it stood a month prior in March when the deficit widened to a record $138.3 billion (chart). The substantial widening in recent months defined the first quarter where net exports subtracted nearly five percentage points off headline GDP growth. This early Q2 read tells us to expect a big reversal.

The main driver of the narrowing was a $68.9 billion collapse in imports (chart). There was weakness across goods categories with the largest drop in consumer goods imports, which included a reversal of a gain in pharmaceutical products the month prior. Imports of autos also slipped by the most outside the pandemic, and industrial supplies imports continued to reverse the December & January finished metal shapes-induced surge.

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