Plus, talking to China again.
President Donald Trump’s sweeping global tariffs in April have led to a halving event in May, prompting US administration officials to smile from ear to ear. While Trumponomics has delivered some early victories for the United States, it remains to be seen if the White House can sustain the momentum in the second half of 2025.
Halving the Trade Deficit
In May, the US goods and services trade deficit cratered by 56% to $61.6 billion, down from $138.3 billion in the previous month, according to the Bureau of Economic Analysis. The trade gap is now at its lowest level since August 2023.
Imports declined by about 16% to a six-month low of $351 billion, while exports rose by 3% to an all-time high of $289.4 billion. Additionally, America’s trade imbalances narrowed with multiple foreign markets, including China ($19.7 billion), the European Union ($17.9 billion), and Ireland ($9.5 billion). The trade deficit, however, widened with Taiwan and Vietnam to $9.7 billion and $14.5 billion, respectively.
The latest trade numbers come a week after the Commerce Department’s advanced estimate suggested the goods trade deficit fell by 46% to $87.6 billion from a record $162.3 billion in March.
Economists are now expecting that the US economy will record a sizable bounce back in the second quarter. The widely watched Atlanta Federal Reserve GDPNow Model estimate suggests growth will come in at 3.8% in the April-June period. Imports are subtracted from GDP growth calculations, so market watchers anticipate a rebound following the 0.2% contraction in the first quarter.
However, with on-again and off-again tariffs, ceasefires, and deals, it is unclear if international trade flows will continue to be upended or stabilize. This makes forecasting the gross domestic product a bit more challenging in the coming months. The April and May numbers indicate a reversal from the January-March span, but perhaps June throws a curveball.
Whatever the case, does this mean that trade deficits are inherently iniquitous? Not at all, but President Trump and his team certainly think so, and that is why these narrowing trade gaps are vital to monitor.
Did Not Xi This Coming
Guess who’s going to London? President Trump announced on Truth Social that Treasury Secretary Scott Bessent, Trade Representative Jamieson Greer, and Commerce Secretary Howard Lutnick will be traveling across the pond to meet with their Chinese counterparts to talk trade.
This comes one day after the president confirmed that he had a 90-minute phone conversation with Chinese leader Xi Jinping. It has been a week since both sides accused each other of violating the 90-day trade truce reached last month, which temporarily lowered tariffs by 115%.
Wait a minute. Speaking of trade, isn’t the deadline for the 90-day pause in a few weeks? Why, yes, it is. So far, the United States has only reached a preliminary trade agreement with the United Kingdom. Trump administration officials have stated for weeks that more deals would be announced, but all they keep telling the press is that agreements are in the works without pointing to any specific countries.
July 9 will be the next key date to mark on the refrigerator calendar.
Tariff Revenues
According to the Congressional Budget Office (CBO), a nonpartisan budget watchdog, the president’s tariffs will reduce deficits by a couple of trillion dollars over the next decade and shrink the economy’s size.
In a letter to Senate Democrats, released on June 3, the CBO projects revenue collections from the levies will total $2.5 trillion in the 2025-2035 budget window. Additionally, this will result in approximately $500 billion in savings on interest payments. This assumes, according to the federal agency, that tariffs stay in place, trade flows are uninterrupted, and the administration refrains from offering exemptions.
Of course, all eyes will be on the upcoming economic forecast that the CBO says will reflect countermeasures by America’s trading partners. “In CBO’s assessment, additional retaliatory tariffs are likely, and U.S. trading partners are probably waiting for negotiations to play out before retaliating fully. Even so, the value of U.S. exports targeted by those tariffs is expected to be lower than the value of imports targeted by U.S. tariffs,” the entity stated.
Does this mean these tariff revenues will offset the anticipated deficit increase of the “big, beautiful bill”? It’s complicated.
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