By Andrew Moran
The U.S. current account deficit narrowed in the second quarter by the most on record, according to new Bureau of Economic Analysis data released on Sept. 23.
The current account is a summary of the nation’s balance of payments, tracking the movement of goods, services, and capital between the United States and the rest of the world. A deficit occurs when the United States imports more goods and services than it exports, indicating that more money is flowing out of the country.
In the second quarter, the current account deficit plunged by $188.5 billion, or 43 percent, to $251.3 billion, from the all-time high of $439.8 billion registered in the first three months of the year.
This came in below the market consensus of $256.3 billion.
The second-quarter gap represented 3.3 percent of current-dollar gross domestic product, down from 5.9 percent posted in the January–March period.
Officials say the reduction was driven mainly by a decline in the goods deficit.
Imports of goods decreased by $184.5 billion, to $820.2 billion, primarily due to a decline in purchases of consumer goods, industrial supplies and materials, and non-monetary gold.
Services imports rose by $2.8 billion, to $222 billion, driven by broad-based increases across various sectors, such as business, computer, information, and telecommunications services.
Goods exports, meanwhile, surged by $11.3 billion, to $550.2 billion. Shipments of services ticked up by $2.1 billion, to $301.6 billion.
The primary account deficit—income and wages earned from international investments and employment—soared to $7.7 billion from $2.6 billion. The secondary income gap—cross-border income without exchange—also edged up to $53.2 billion from $51.7 billion.
Winds of Change in Global Trade
President Donald Trump’s sectoral and reciprocal tariffs over the past several months have significantly disrupted international trade.
The current administration is aiming to make the United States a leading manufacturer in a diverse array of industries, from automobiles to semiconductors. During this shift, the rest of the world, particularly China, would become a top consumer of American-made goods.
A series of trade agreements with other countries features provisions that allow foreign nations to invest billions of dollars in U.S. manufacturing and purchase American products. In exchange, these arrangements have resulted in lower tariff rates on impacted markets.
Scores of domestic and foreign companies have also committed to investing trillions in U.S. manufacturing.
While many of the president’s levies have been implemented, Trump has stated that he plans to introduce or expand tariffs on other industries, including furniture, pharmaceuticals, and semiconductors.
Still, with much of the administration’s trade policies in place, industry observers say that import cargo volume could start to slow in the coming months as firms have stocked up as much as they could ahead of the levies.
According to the National Retail Federation’s Global Port Tracker, the number of shipping containers arriving at U.S. ports is expected to decrease by nearly 7 percent in September and by more than 13 percent in October compared to the same period last year.
“Tariffs have had a significant impact on trade,” Hackett Associates founder Ben Hackett said in the report. “The trade outlook for the final months of the year is not optimistic.”
In addition, the Cass Freight Index—a leading economic indicator of freight activity in North America—fell by more than 9 percent year over year last month, reaching the lowest level in five years.
Despite potential slowdowns at the nation’s ports, economic conditions in the United States remain solid, with the second-quarter GDP growth rate at 3.3 percent. The Federal Reserve Bank of Atlanta’s GDPNow Model suggests the third-quarter expansion will be above 3 percent.
The federal government has also generated substantial revenues from Trump’s tariffs.
According to the Daily Treasury Statement (Sept. 19), tariff income has exceeded $190 billion in the current fiscal year.
“The U.S. government currently collects about $350 billion in tariffs at an annualized rate, which corresponds to 18 percent of annual household income tax payments,” Torsten Slok, chief economist at Apollo Wealth Management, said in a recent note. “The bottom line is that the amount of money collected in tariff revenue is very significant.”
