In April, the trade deficit in the U.S. reached a low of seven months as exports increased to record highs, driven by an increase in the number of shipments of soybeans and industrial materials.
The report released on Wednesday by the Department of Commerce was the most recent sign of strong economic growth for the second quarter.
However, the protectionist trade policy President Donald Trump is pushing, which has seen the U.S. placing tariffs on certain imports from several countries that include Canada, China and Mexico, and members of the European Union, has created a threat to the strong economic outlook.
One Wall Street economist said the U.S. economy was not just on solid footing, but will likely show accelerated growth during the second quarter. However, trade tensions are a threat to the overall outlook and clearly could derail the economic growth, added the economist.
The Department of Commerce said that the trade game had narrowed by 2.1% ending at $46.2 billion, which is the smallest since last September. March data was revised to show that the trade deficit fell to $47. 3 billion and not the $49.0 billion previously reported.
Economists forecasted that the trade deficit would remain unchanged in April at its $49 billion. When the deficit is adjusted due to inflation, the trade gap in March narrowed from $78.2 billion to $77.4 billion. The “real trade deficit” is less than it averaged during the first quarter of $82.5 billion.
If the real trade deficit trend is maintained, then trade could help to contribute to the U.S. gross domestic product for the second quarter after a neutral impact for the first three months of the year.
In March, Trump announced new tariffs on aluminum and steel imports as a way of protecting the domestic industries from what he calls unfair competition from international producers.
Last week tariffs on aluminum and steel were extended by the president to imports from Mexico, Canada and the European Union.
Those measures were retaliated against by Mexico as it targeted several U.S. industrial and farm products. Canada said it would place tariffs on U.S. imports that include orange juice, whiskey, aluminum, and steel amongst others.
Thus far in 2018 exports to Canada, Mexico as well as the European Union have seen growth in the double-digits.
One economist warned that the U.S. failed to understand the strategy of risking a full blown trade with Canada, Mexico and the EU particularly when the U.S was expanding strongly in each of those markets.