In a sharp economic turn, the US trade deficit dropped to its lowest level in nearly two years, driven by Donald Trump’s aggressive tariff policies. According to new Commerce Department data, the deficit shrank by 16% in June to $60.2 billion—its narrowest since September 2023. When businesses stopped hoarding, consumer demand fell, and imports fell sharply.
The biggest change was a more than one-third reduction in the trade gap between the United States and China. Short-term GDP growth was boosted by the tariffs, but they also raised new worries about potential long-term damage to the global supply chain.
Imports Fall, Trade Deficit Shrinks
In June, the US trade deficit narrowed sharply, largely due to falling consumer goods imports. Imports dropped from $350.3 billion in May to $337.5 billion. This reflected a cooling off after months of rushed buying ahead of Trump’s new tariffs. At the same time, exports stood at $277.3 billion, slightly below May’s $278 billion. As a result, the overall trade deficit hit $60.2 billion, down from $71.7 billion—a 16% decline.
Just days earlier, the goods trade deficit alone fell by 10.8%, also marking a two-year low. The primary cause of this shrinkage, according to economists, is the abrupt slowdown in incoming products.
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Economy Rebounds with Trade Boost
In the second quarter, US economy received a boost from trade. GDP expanded by a strong 3.0% in Q2 after shrinking at an annual rate of 0.5% in Q1. This rebound was driven mostly by reduced net imports, which helped offset inflationary pressures and interest rate concerns.
Consumers and businesses had frontloaded purchases earlier this year to dodge the anticipated tariffs. That surge in Q1 now appears to be reversing, giving the economy temporary breathing space.
Trump’s Tariff Push Redraws Trade Flows
President Trump’s new tariffs are reshaping global trade. Ahead of the August 1 deadline, he rolled out a sweeping list of import taxes. Set to take effect on August 7, these tariffs range from 10% to 41%. According to Yale’s Budget Lab, the average US tariff rate now stands at 18.3%—the highest since 1934.
Trump has framed these tariffs as vital for protecting American manufacturing. However, the critics warn they could inflate prices and alienate trade partners.
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China Deficit Plunges to 20-Year Low
The report highlighted a dramatic shift in trade with China. The US trade deficit with China dropped by roughly a third in June to $9.5 billion—the lowest since February 2004. In just five months, the disparity has decreased by $22.2 billion, or 70%.
This decline reflects a steep decline in Chinese imports, which are at their lowest since 2009 at $18.9 billion. Although it has increased tensions, the 30% tariff on the majority of Chinese imports is harsh.
Restricted Worldwide Supply Chains
The shrinking trade gap seems like a good thing on paper, but the reality is more complex. Long-standing supply chains have been thrown off balance by the tariffs, particularly with China.
