The numbers are a sign that Trump’s policies may be starting to chip away at the global trade deficit, which the president views as a key problem for the U.S. economy. And tariffs were not yet pushing prices higher for consumers in April, in a boon to Trump.
“I would argue this is exactly what the administration laid out, and this is so far what is playing out,” Joe LaVorgna, the chief economist at SMBC Nikko Securities and a former Trump economic adviser, said on CNBC.
Though the drop-off in spending could be an indication that the economy is slowing, taken together, the data “ultimately is not a warning sign for now, especially because wage growth was solid,” said Kevin Gordon, a senior investment strategist at Charles Schwab. “For now, it’s a voluntary constraining of the budget on the part of the consumer.”
It’s too early to know where the trade deficit will settle over the long term. In May, the administration deescalated tensions with China, and there could be some recovery in commerce between the two countries as a result.
Long-term tariff rates are also uncertain. The administration has been negotiating deals that were already bogged down even before a federal court ruling called into question the legality of the bulk of Trump’s tariffs. Now, talks with China are stalled, with Trump arguing in a social media post that Beijing had “TOTALLY VIOLATED” a deal negotiated in Geneva. And it’s an open question whether the president would negotiate a tariff rate below the 10 percent floor he’s placed on countries around the world.
In the meantime, economists expect some tariff costs to begin showing up in official inflation data in the coming months. For now, the early effects have mostly appeared in gloomy business confidence reports and shrinking profit margins for producers.
