Trade deficit shrinks with tariffs and geopolitics

August 4, 2026

The US trade deficit decreased 5.6% in June to $73.3 billion from $77.6 billion in May. Imports declined more than exports, combining to shrink the deficit. The trade deficit worsened 33.8% from a year ago following the whiplash of Liberation Day. 

Trade policy continues to evolve. Emergency powers tariffs were ruled unconstitutional by the Supreme Court in February. The Administration replaced these with temporary Section 122 tariffs that expired in July. Section 301 tariffs are now in effect, covering 60 countries and more than 99% of imports. These countries now face tariff rates of 10% to 12.5%. 

Sector specific tariffs are still being layered. Semiconductors, autos and auto parts, agricultural equipment, products made of steel, aluminum and copper face tariffs. Threatened tariffs on pharmaceuticals, particularly generics, are not planned to take effect until 2028 but can be avoided if the drugmaker moves production onshore. Investigations are ongoing in drones, wind turbines, medical devices, and semiconductor inputs.

That should return the effective tariff rate close to its 2025 peak of 12%. Tariff mitigation efforts and industry-specific exemptions will lower that rate over the next two years, although enforcement at the border has intensified.

The Administration let the existing USMCA lapse on July 1, putting the most impactful US trade agreement into “zombie mode.” Annual reviews will follow until 2036. If no “clean” USMCA is signed by then, the deal will be fully voided. This adds to trade policy uncertainty. Investment into Canada and Mexico is already suffering due to uncertainty around the access to the US market. 

Exports dipped 0.9% in June, while imports dropped 1.8%. After adjusting for inflation, the real goods deficit declined 5.3%, more than the headline indicates. A sharp drop in exports of petroleum products accounted for much of the weakness and was due to a combination of falling prices and a brief reopening of the Strait of Hormuz during the month.

An outlier was exports of services, which accelerated due to the FIFA World Cup games – travel to the US counts as an export. The ranch dressing that was bought up was likely captured in retail sales. 

Contrary to recent months, gold for investment purposes was not a key component of changes in the trade deficit. Exports of nonmonetary gold increased $3.4 billion from May, while imports were unchanged. 

Leaving out nonmonetary gold, the trade deficit improved by a less, which means that it could be a larger drag on the second quarter GDP growth than initially estimated. Domestic demand jumped 3.9% in the second quarter.

Imports, excluding gold, decreased $7.7 billion in June with all categories declining. Capital goods receded from May’s record high, falling by $2.1 billion. Computers extended the previous month’s near-record drop, plummeting $3 billion. 

Computer-related product prices are now rising instead of falling. That is a major shift and reflect crowding out by data centers. Memory chips have soared in price, which is taking a toll on the demand for consumer electronics. Generation Z says that they are buying fewer gaming consoles and waiting for sales to make larger consumer electronic purchases according to a poll by Civic Science. 

Semiconductor imports slipped from last month’s record level of imports but remain extremely strong. Semiconductors are considered strategic inputs and escape most tariffs via waivers.

Consumer goods imports fell $2.1 billion on pharmaceutical preparations. Imports of automotive vehicles, parts and engines declined by $1 billion, driven by auto parts and accessories. 

Imports of industrial supplies fell $0.9 billion, on a $1.3 billion drop in crude oil imports. Oil prices fell in June on the now nullified ceasefire agreement to reopen the Strait of Hormuz. The trade data gathered included the period of the reopening. Foods, feeds and beverages fell from May’s strong imports, slipping $0.5 billion.

Exports fell $7.2 billion after accounting for nonmonetary gold. Industrial supplies fell $3.3 billion. Crude oil exports collapsed $5.7 billion, the largest decline on record by more than $4 billion. The previous three months set records for the largest export increases for crude. The drop in oil prices, following June’s reopening of the Strait of Hormuz drove the decline.  

Capital goods slipped $0.6 billion, pulled down by computers. Semiconductor exports dropped for the fourth straight month, albeit a minimal $60 million. Goods, feeds and beverages edged down $0.4 billion on weak soybean exports, which had their largest decline in three years.

Exports of autos and parts increased $0.8 billion on passenger cars and trucks, buses and special purpose vehicles. Consumer goods edged up $0.6 billion with a rise in exports of pharmaceutical preparations.

The deficit with Taiwan fell $4.5 billion to $14.9 billion due to lower imports. The deficit with South Korea jumped $3 billion to $7.4 billion on falling exports and increasing imports. The AI buildout has led to surge in semiconductor imports from both countries.