US trade deficit reaches record high Due to a dramatic increase in goods imports as businesses scrambled to import goods before President Donald Trump imposed steep tariffs, the U.S. trade deficit reached an all-time high in...
By Matt Rowe
This story originally appeared on Due
Due to a dramatic increase in goods imports as businesses scrambled to import goods before President Donald Trump imposed steep tariffs, the U.S. trade deficit reached an all-time high in March. For the first time in three years, the growing disparity has caused economic growth to veer into negative territory. The Commerce Department said Tuesday that the trade deficit increased by 14%, or $17.3 billion, to a record $140.5 billion. Consumer goods and capital equipment were the main drivers of the 4.4% increase in imports to an all-time high of $419.0 billion. In contrast, exports increased by just 0.2% to $278.5 billion.
US trade deficit reaches record high
In an effort to keep up with Trump’s increasing tariff policies, businesses drastically increased imports from ten countries, including Mexico, Vietnam, and Ireland. Shipments from other nations increased while imports from China fell to their lowest level since 2020, most likely as a result of a 145% tariff on Chinese goods imposed in April.
Imports of goods increased 5.4% to a record $346.8 billion. Pharmaceutical imports from Ireland were a major contributor to the $22.5 billion increase in consumer goods alone. Automobile and capital goods imports also increased significantly, with passenger cars and computer accessories leading the way. However, a sharp drop in precious metals, such as gold and silver, was a major factor in the $10.7 billion drop in industrial supply imports.
Businesses front-loaded their imports, according to economists, in anticipation of deteriorating trade conditions. “Firms are clearly trying to get ahead of this chaos, but we haven’t yet seen the full impact of these tariffs,” said Christopher Rupkey, chief economist at FWDBONDS. “Collections only began in earnest after the White House’s ‘Liberation Day’ declaration on April 2. The real economic shock is likely still ahead.”
Markets have trembled and capital has fled the US dollar as a result of Trump’s aggressive tariff policy. Brian Bethune, an economist at Boston College, estimates that the outflows of precious metals between December and March totaled an astounding $92.5 billion. “This kind of capital ‘parking’ in unproductive assets weakens the dollar and undermines investment,” Bethune said. This year, the dollar has already lost more than 5% of its value relative to other major currencies.
Exports and the future
Exports saw a slight increase, but the import spike took center stage in the news. Goods exports increased 0.7% to $183.2 billion, driven by increased shipments of gold, natural gas, and automobiles. However, a $1.8 billion decline in sales of civilian aircraft was primarily responsible for the $1.5 billion decline in capital goods exports.
The goods trade deficit skyrocketed to $163.5 billion in March in spite of these gains. The U.S. economy experienced its first annualized contraction of 0.3% last quarter as a result of this growing disparity, which reduced GDP by a record 4.83 percentage points. Economists estimate that by May, the import boom will probably slow, which could contribute to a second-quarter recovery in economic growth. They warn, though, that any recovery may be constrained by slowing exports brought on by international boycotts and a decline in tourism. March saw a $1.3 billion decline in travel exports alone, which helped to drive down service exports overall by $0.9 billion.
Trump keeps arguing that his tariffs are required to boost American manufacturing and balance out tax cuts. However, detractors caution that more ambiguity might exacerbate economic volatility.
Featured Image Credit: Tom Fisk; Pexels: Thank You!
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