Trade gap narrows

August 5, 2025

The US trade deficit fell by 16% in June to $60.2 billion, the smallest reading on the overall deficit since September 2023. A drop in imports of products with high inventories from the first quarter outweighed a small decline in exports. Those losses were not enough to stem stockpiling in June, as consumer spending remained subdued. Retail and wholesale inventories both rose in June.

The trade deficit with Europe narrowed the most, from $21.9 billion in May to $9.9 billion in June. Imports from Europe have dropped the most, beating the drop in imports from China. Though the drop in the deficit with Europe was broad-based, the largest decline was from Ireland. Pharma imports soared in the first quarter as the large firms scrambled to get drugs into the country ahead of tariffs. The trade deficit with China also continued to narrow, reaching a level of not seen since the early 2000's.

Exports decreased -0.5%, or $1.2 billion. Nonmonetary gold and finished metal shapes (most of which is gold) decreased $6.6 billion. Gold is not included in the GDP calculation. Exports for GDP increased by $5.4 billion which means and the trade deficit decreased even more than implied by the headline figures. Exports of capital goods increased $2 billion on machinery and aircrafts, consumer goods increased $1 billion, driven by pharmaceuticals and automotives increased by $198 million. Exports of services were essentially flat.

Imports fell -3.7%, or $12.8 billion. Gold represented very little of the shifts (for the first time in a while). By far the largest decline showed up in consumer goods, down -$8.4 billion alone. Pharmaceuticals drove the decline, down -$9.6 billion. That was partially offset by increases in cell phones, cotton apparel and household goods and other textiles.

Automotives were weak, with passenger car imports down -$1.1 billion, weighed down by automobile tariffs. Industrial supplies declined -$2.7 billion. Declines were driven by crude oil (-$1 billion), nuclear fuels (-$426 million) and copper (-$315 million).

Imports of services were essentially flat during the month. The only category to increase was capital goods, up $614 million. Some categories such as electrical products, machinery and semiconductors were up. We do expect that some of these categories in capital goods could remain strong given provisions in the tax bill for bonus depreciation.

The headline data does not account for changes in import or export prices or gold. The real trade deficit declined by less than the nominal deficit, but the large decrease in gold exports should offset those shifts.