US goods trade gap narrows on import pullback

The US goods trade deficit narrowed in June as imports fell more sharply than exports, with a notable drop in capital goods purchases reversing part of the surge linked to business investment and inventory building earlier in the quarter.

The merchandise trade gap decreased 4.2% to $101.5 billion from a revised $105.9 billion in May. Imports dropped $8.2 billion to $306.2 billion, while exports declined $3.8 billion to $204.7 billion, their lowest level in five months.

The figures point to softer trade flows after companies accelerated overseas purchases during the spring. Businesses had sought equipment, components and consumer products ahead of possible supply disruptions and higher costs stemming from tariff changes and geopolitical tensions.

Capital goods imports registered an unusual decline after reaching elevated levels in May, when demand for computers, semiconductors, telecommunications equipment and other machinery pushed the category to a record. The retreat suggests some companies had completed advance orders or were slowing the pace of stock accumulation after building buffers.

Consumer goods imports also fell in June, alongside lower purchases of industrial supplies. Imports of motor vehicles, parts and engines weakened, adding to the broad-based decline. Despite the monthly fall, overall goods imports remained 16.6% higher than a year earlier, reflecting strong domestic demand and continued investment in technology infrastructure.

Artificial intelligence spending remains a major driver of equipment purchases. Technology groups, data-centre operators and cloud-computing providers are investing heavily in servers, advanced chips, networking systems and power equipment. Much of that machinery or its components is sourced overseas, making capital expenditure an increasingly important influence on the trade balance.

Separate manufacturing data showed underlying business investment retained momentum. Orders for non-defence capital goods excluding aircraft, a closely watched indicator of corporate spending plans, rose 0.9% in June. Shipments of those goods, which feed into calculations of equipment investment in gross domestic product, posted their strongest advance in several months.

The contrasting figures indicate that lower imports may partly reflect timing rather than a broad collapse in investment. Companies can place orders with domestic manufacturers while drawing on equipment imported during earlier months. Long delivery schedules for semiconductors and specialised machinery can also produce sharp monthly fluctuations.

Exports weakened as shipments of industrial supplies fell, led by petroleum and related products. Energy trade was affected by shifting prices and supply conditions surrounding the fragile ceasefire involving Iran and the United States. Capital goods exports also declined, while overseas sales of consumer goods and motor vehicles recorded modest gains.

The drop in exports underscores persistent pressure from uneven global growth, currency movements and trade restrictions. Foreign buyers are contending with higher financing costs and uncertainty surrounding tariffs, while US producers face retaliatory measures and competition from lower-cost suppliers.

President Donald Trump’s administration has expanded its tariff programme after a temporary global duty expired. New levies of 10% or 12.5% have been imposed on imports from 60 trading partners under Section 301 of the Trade Act, with the administration citing inadequate enforcement against forced labour in supply chains.

The measures cover most US imports, although oil, natural gas, fertilisers, critical minerals and hundreds of other products have been excluded. Trading partners have questioned the justification for the duties, while businesses are assessing whether the revised legal framework will prove more durable than the administration’s earlier tariff system.

Trade is still expected to restrain second-quarter economic growth because imports remained high across the period. Economists estimate net exports could subtract about one percentage point from annualised GDP growth, even after the June narrowing.

The impact of trade on GDP depends on inflation-adjusted exports and imports rather than the headline deficit alone. Imports subtract from the calculation because they are included elsewhere in consumer spending, investment or inventories, while exports contribute directly to domestic output.