U.S. trade deficit drops to one-and-a-half year low in May

FILE PHOTO: Shipping containers sit at the ports of Los Angeles and Long Beach, California, U.S. on February 6, 2015. REUTERS/Bob Riha, Jr./File Photo

WASHINGTON, (Reuters) - The U.S. trade deficit fell to a 1-1/2-year low in May as exports rose to a record high, boosted by an increase in shipments of soybeans and commercial aircraft.

The Commerce Department said on Friday the trade gap narrowed 6.6 percent to $43.1 billion, the smallest since October 2016. Data for April was slightly revised to show the trade deficit falling to $46.1 billion, instead of the previously reported $46.2 billion.

Economists polled by Reuters had forecast the trade deficit declining to $43.7 billion in May. When adjusted for inflation, the trade gap narrowed to $75.3 billion, the lowest level since March 2017, from $77.5 billion in April. The so-called real trade deficit in April and May was below its $82.5 billion average in the first quarter.

The drop in the real trade deficit in April and May suggests trade could contribute to gross domestic product in the second quarter after having a neutral impact in the January-March period. Estimates for second-quarter GDP are above a 4.0 percent annualized rate, which is double the 2.0 percent growth pace logged in the first three months of the year.

But tensions between the United States and its major trading partners, including China, the European Union, Canada and Mexico are clouding the outlook for the rest of the year.

The Trump administration has imposed tariffs on a range of imported goods, including steel and aluminum, to protect domestic industries from what it says is unfair competition from foreign manufacturers. On Friday, the U.S. and China slapped tit-for-tat duties on $34 billion worth of the other’s imports.

Economists have warned the tit-for-tat tariffs could disrupt the supply chain, undermine business investment and raise prices for consumers, and wipe out the stimulus from a $1.5 trillion tax cut package that came into effect in January.

The politically sensitive goods trade deficit with China surged 18.7 percent to $33.2 billion in May. The deficit with Mexico jumped 18.8 percent.

In May, exports of goods and services rose 1.9 percent to a record $215.3 billion. Exports were boosted by a $1.9 billion increase in deliveries of commercial aircraft. Soybean exports increased 2.0 billion. Imports of goods and services rose 0.4 percent to $258.4 billion in May.

Reporting by Lucia Mutikani; Editing by Andrea Ricci