Front running drives trade deficit

May 5, 2026

The US trade deficit expanded 4.4% in March to $60.3 billion. Front running and lower tariffs drove imports, though the Iran war’s effects on shipping costs could slow that momentum. 

The Supreme Court decision on February 20 ruling emergency powers tariffs unconstitutional has prompted importers to continue stocking up under the lower Section 122 tariff rate of 10%. The administration has floated raising this rate to 15%.  

Exports rose 2% in March while imports jumped 2.3%. The trade deficit has dropped 55% from a year ago when firms were rushing to stock up ahead of new tariffs. After adjusting for inflation, the real goods deficit increased 6.7%, more than the headline indicates. 

Unlike previous months, when gold used for investment purposes became a key component of changes in the trade deficit, the effects of gold looked muted in March. Exports of nonmonetary gold slipped $0.8 billion from February, while imports increased $0.2 billion.  Leaving out nonmonetary gold, the trade deficit expanded 2.4%, less than the headline implies.  

Imports excluding gold increased $9.4 billion in March. Autos, parts and engines increased $3.6 billion, driven by passenger cars. The tariff changes have unintentionally given some foreign auto producers an advantage over domestic producers who have to import parts. Consumer goods imports moved up $2.4 billion on non-luxury, everyday items like cellphones, clothing and household goods. Front running on cheaper products is likely behind the increase. Higher end products, including jewelry, gemstones and diamonds, coins and artwork that had been consistently strong, declined.  

Goods needed for AI data center construction, which are mostly tariff exempt, were mixed following February’s record highs. Capital goods rose $2.1 billion on demand for computer accessories and telecommunications equipment. Imports of semiconductors and computers fell in March, after both reached record highs in February. Following the flood of chip buying, supply shortages are appearing. Constrained helium flows from the Strait of Hormuz, needed for semiconductor fabrication, will restrict future imports. Higher end semiconductors are still being produced, but lower end production has slowed.  

Industrial supplies imports grew $2.1 billion, more than half of which came from fuel and crude oil. Imports of food edged up $566 million. Imports of services decreased $1.9 billion. 

Exports increased $7 billion after accounting for nonmonetary gold.  Industrial supplies and materials jumped $5 billion. Crude oil, other petroleum products, fuel oil, natural gas liquids and coal made up $7.2 billion of the increase, offset by precious metals. Foods, feeds and beverages rose $1.1 billion on soybean exports. Autos, parts and engines rose $624 million with increases across all categories, led by passenger cars. Capital goods increased $566 million on computers and computer accessories, which were partially offset by a drop in semiconductors.  

Consumer goods exports reversed some of February’s growth with a $1.7 billion decline pulled down by luxury goods such as gem (not industrial) diamonds, jewelry and coins. Exports of services moved down $300 million on a $1.1 billion drop in travel. Transport, financial services and other business services edged higher. 

The 10% Section 122 tariff made the effective tariff rate lower for some countries, while the US dollar measured against a basket of major foreign currencies strengthened during March. These shifts explain some of the deficit increases.  

The deficit with the European Union expanded $4.1 billion, primarily due to increased imports from Germany on machinery and transportation equipment. Switzerland, where much gold trade originates, recorded a $3.5 billion decline in its trade surplus. The trade deficit with Canada increased by $2.8 billion.  The deficit with Vietnam increased $2.7 billion to its largest on record.