Economic Report: U.S. trade deficit drops 4% to $65.5 billion on waning imports

The deficit has fallen by more than one-third since hitting a record high in the spring of 2022. While lower deficits are a positive for gross domestic product, they can also be a sign of a weakening U.S. or global economy.

Key details: Imports slid 1% to $253 billion in June, marking the third decline in a row. The U.S. imported fewer computers, industrial supplies and oil.

U.S. imports of goods have tumbled 13% from a record high in March 2022.

Exports slipped a scant 0.1% last month to $247.5 billion. The U.S. shipped less oil and fewer pharmaceutical drugs.

The trade deficit with China fell $2.1 billion to $22.8 billion in June and is on track to be much lower compared to a year ago.

The gap with China totaled $142 billion in the first six months of 2023 vs. $216 billion in the same period in 2022.

High trade tensions between the U.S. and China and efforts by global manufacturers to reduce their reliance on China have made a big dent in the deficit between the two countries.

Big picture: Big changes in the trade deficit often reflect disruptions in the U.S. or world economies.

Falling imports, for example, appear concentrated in manufacturing. American and foreign manufacturers — aside from automakers — have suffered a drop in demand amid a shift in consumer spending toward services and away from goods.

Exports have also fallen, but not quite as much.

The U.S. has benefited from a rebound in tourism, which counts as an export, as well as strength in other services such as finance.

Looking ahead: “We expect depressed trade flows through the remainder of the year and a sustained recovery in 2024 after the US exits a mild recession,” said Matthew Martin, U.S. economist at Oxford Economics.

Market reaction: The Dow Jones Industrial Average
DJIA,
-0.73%
and S&P 500
SPX,
-0.72%
were set to decline in Tuesday trades.