US trade deficit shrinks in August as imports plunge after new tariffs

The US trade deficit shrank more than anticipated in August as imports fell, though trade may still weigh on economic growth in the third quarter.

According to the Commerce Department’s Bureau of Economic Analysis and the Census Bureau, the trade gap narrowed by 23.8% to $59.6 billion on Wednesday.

KPMG senior economist Meagan Schoenberger said that “new trade policy changes came into effect in August,” including tariff increases aimed at several US trading partners. She added that wholesalers ran down inventories to make up for the decline in imports. Imports dropped 5.1% to $340.4 billion, while exports inched up 0.1% to $280.8 billion.

A 43-day government shutdown had halted the release of federal economic data, from inflation figures to retail sales, but reports are gradually being issued again  with crucial September employment numbers expected on Thursday.

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The latest trade report, originally set for publication on October 7, was postponed due to the shutdown.

President Donald Trump’s protectionist trade policy, marked by sweeping tariffs, has caused big swings in imports and the trade deficit, distorting the overall economic picture.

Trade flows have been heavily swayed this year by President Donald Trump’s fast-changing tariff policies, with importers rushing to stock up on inventory ahead of planned hikes in duties.

“We expect continued uncertainty because of ongoing legal challenges and trade negotiations,” Schoenberger added.

She flagged that the United States still has many national security-related investigations underway, which could lead to new tariffs, and potential exemptions in the pipeline.

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These “could lead to new rounds of stocking up and draining inventories,” she said.

Since returning to the presidency, Trump has imposed fresh duties on various economies, including so-called “reciprocal” tariffs on virtually all US trading partners over practices that Washington deems unfair.

Trump also engaged in a tit-for-tat tariffs escalation with China, the world’s second biggest economy, with rates reaching prohibitive triple-digit levels in April – snarling trade.

Among countries, the US goods deficit with Canada shrank in August, as did that with China.

With inputs from agencies