US trade deficit shrinks in April -- but 'for all the wrong reasons'

The mammoth US trade deficit shrank in April in a bit of good news for President Donald Trump, but the deficit in goods trade with China expanded despite steep tariffs imposed by Washington, the Commerce Department reported Thursday.

The falling deficit should cheer Trump, who has made cutting America's trade imbalance a priority, but economists warn that rising barriers to international commerce -- like tariffs -- threaten to derail the global economy.

The overall US trade deficit fell 2.1 percent in April to $50.8 billion, seasonally adjusted -- largely in line with analysts' expectations -- but the figure was only a decrease after a sharp upward revision to the March data.

So far this year, the US trade gap is still two percent higher than the same period in 2018.

Exports took their biggest dive in more than four years, declining by $4.6 billion to $206.8 billion, the largest drop since January 2015.

But imports fell faster, dropping $5.7 billion, the largest dip in three months.

In the first quarter, falling imports helped lift US GDP but economists caution that it points to a slowdown in underlying economic activity.

"It's nice that the trade deficit narrowed but it did so for all the wrong reasons," economist Joel Naroff wrote in a note to clients.

- 'Incomplete and naive' -

Likewise, RDQ Economics said that viewing imports simply as competition for domestically produced goods was "incomplete and naive."

"Over one-fifth of imports are raw materials that go into US production and a further 27% are imports of capital goods that go into the capital stock of US businesses," it said in an analytical note.

Still, April's shrinking gap between exports and imports could support growth in the second quarter.

The trade deficit with China jumped 7.6 percent for the month but was still down 10.8 percent for the year amid the escalation of a year-long trade war.

Meanwhile, the deficit with Mexico fell 0.6 percent to $7.9 billion for the month, helping reverse part of this year's sharp increase.

Trump has threatened steep tariffs on all Mexican goods as he demands that Mexican authorities help stem the flow of migrants into the United States from Central America.

The US exports slump was broad-based: autos and parts, medicines, and a $2.3 billion drop in civilian aircraft, likely reflecting the suspension of deliveries for a top-selling Boeing jet grounded after two deadly crashes.

Exports of capital goods were at their lowest since October 2017, while travel services as well as maintenance and repair also dipped.

Meanwhile, American demand for capital goods like civilian aircraft engines and microchips fell to their lowest level in 16 months.

The United States also imported fewer autos and auto parts, organic chemicals and gemstones, and bought less natural gas and wood pulp.