Trade Gap Expands
US Trade Deficit Widens to $77.6 Billion in May, Largest in Over a Year
Key Points
Toyota announced a $3.6 billion investment to expand US auto production, including moving Tacoma pickup production to a San Antonio plant by 2030.
Deficit with Korea stood at about $4.4 billion in May, adding to bilateral imbalances with Vietnam, Mexico, Taiwan, China and the European Union.
May GDP growth is forecast to slow to around 1.2%, reflecting the drag from a widening goods deficit and softer exports.
Tariffs are criticized as ineffective at reducing the trade deficit, with claims of 'tariff front running' and the deficit returning to its starting point.
The services surplus remained steady at about $24.5 billion, providing a modest offset to the goods deficit.
The US trade deficit widened to $77.6 billion in May, the largest gap in over a year, according to Bloomberg. Imports climbed 3.3% from April while exports fell 3.2%, pushing the shortfall past most forecasts of $78 billion. The May figure marks the biggest deficit since March 2025, Bloomberg noted.
A boom in AI-related spending drove much of the import surge, with companies rushing in semiconductors, pharmaceuticals, and mobile phones, Qatar Tribune reported. The deficit's 44% jump from the prior month rattled analysts tracking the health of US trade, according to Mish Talk.
AI Spending and Pharma Imports Fueled the Surge
Consumer and capital goods led the import wave in May. Semiconductors, pharmaceuticals, and automobiles all posted strong gains. Qatar Tribune noted that AI-driven demand pushed companies to stockpile chips and related tech hardware at a rapid pace.
Petroleum imports also hit a record high, partly tied to global tensions affecting oil shipments, Market Screener reported. At the same time, US exports fell across multiple categories, including industrial supplies and consumer goods, trimming revenue from overseas sales, according to Argus Media.
Bilateral Deficits Remain Deep Across Key Partners
The trade gap is not spread evenly. The US runs large deficits with China, Mexico, Vietnam, Taiwan, and the European Union. The deficit with South Korea alone hit $4.4 billion in May, adding to a long list of bilateral imbalances.
Toyota announced a $3.6 billion investment to expand US auto production, moving Tacoma pickup output to San Antonio by 2030. That kind of reshoring move is being watched closely as one possible response to persistent import pressure, Bloomberg noted.
Tariffs Have Not Closed the Gap, Critics Say
Tariffs were meant to shrink the trade deficit, but the data tells a different story. Mish Talk argued that so-called 'tariff front running' — importers rushing goods in before new duties hit — inflated early numbers, but the deficit quickly returned to where it started.
Structural forces like currency dynamics and weak global demand make the deficit hard to fix with tariffs alone, analysts say. The services surplus held steady at $24.5 billion in May, offering a small cushion against the much larger goods shortfall, according to Argus Media.
GDP Growth Expected to Slow as Trade Drag Bites
The widening trade gap is already weighing on growth forecasts. May GDP growth is projected to slow to around 1.2%, dragged lower by soft exports and strong import demand, Bloomberg reported. Net exports subtract from GDP when imports outpace exports.
The May deficit of $77.6 billion is likely to keep pressure on policymakers heading into summer. Argus Media noted the gap was the widest in 14 months, a sign that even with tariffs in place, trade flows have not reversed course in any meaningful way.
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