U.S. Trade Deficit Jumped 42% in May to $77.6 Billion, Largest Monthly Gap in Over a Year

Since trade flows began swinging wildly in response to tariff uncertainty last year, each monthly Commerce Department report has told a different chapter of the same story. The May data, published July 7, is the most dramatic chapter yet.

What the Numbers Actually Show

The U.S. trade deficit in goods and services hit $77.6 billion in May, up from a downwardly revised $54.6 billion in April, according to the U.S. Census Bureau and Bureau of Economic Analysis. That is a 42.2% single-month widening and the largest monthly deficit since March 2025, when a similar import surge preceded an earlier round of tariff increases.

Imports totaled $395.3 billion, a 3.3% gain from April. Exports came in at $317.7 billion, down 3.2%. Both the Bloomberg survey median ($78.4 billion) and the Wall Street Journal analyst consensus ($78 billion) had forecast a slightly wider gap, so the actual number landed marginally better than expected, though the scale of the move remains substantial.

The goods deficit alone widened to $106.5 billion, while the services surplus expanded modestly to $28.9 billion, according to Haver Analytics.

What Drove Imports Higher

Imports rose in every major end-use category in May, per the Census Bureau data. Automotive vehicles, parts and engines rose $2.2 billion; semiconductors gained $1 billion; consumer goods, industrial supplies, and capital goods all posted gains.

The broader capital goods import category reached a fresh record in May, according to Transport Topics. AI-driven data center construction continues to pull in chips and related components at a historic pace.

BMO Capital Markets senior economist Sal Guatieri offered perspective, pointing to broader demand dynamics as key supporting factors. "Sturdy domestic demand and a firmer dollar are likely supporting factors," Guatieri said in a client note. Purchasing manager surveys also suggest U.S. companies were stockpiling merchandise to get ahead of tariff escalations and further price hikes.

What Drove Exports Lower

The export decline was steep but concentrated. Goods exports fell 5.3% month-over-month, with a single category, nonmonetary gold and other precious metals, accounting for 65% of the total dollar decline. That category alone dropped $7.5 billion, per Haver Analytics.

Strip out the gold volatility and the picture remains soft. Capital goods exports ex-autos fell 4.9%, and nonfood consumer goods exports ex-autos dropped 9.1%.

Service exports edged up 0.7%, with travel rebounding 2.4% after declines in March and April. Oil exports rose, boosted in part by the Iran conflict. Crude oil exports increased $2 billion in May, according to the Morningstar/Dow Jones report. As of June 26, however, Energy Information Administration weekly data showed oil and petroleum product exports had largely reverted to pre-war levels.

The GDP Drag

Net exports subtracted only 0.37 percentage points from GDP in the first quarter of 2026. The April/May average goods deficit is running considerably above the Q1 average, per Haver Analytics, meaning net exports are on track to subtract more from second-quarter GDP growth.

Before Tuesday's data, the Federal Reserve Bank of Atlanta's GDPNow model had net exports subtracting 1.62 percentage points from Q2 GDP. Economists will now be revising those estimates.

The Tariff and Legal Context

The trade picture cannot be separated from the policy chaos surrounding it. In February, the Supreme Court overruled President Trump's use of the International Emergency Economic Powers Act to impose broad global tariffs, according to the Morningstar/Dow Jones report. The administration has since turned to other legal authorities to continue restricting imports.

Last week, the U.S. also declined to extend its signature trade pact with Mexico and Canada, triggering a decade-long review process. That decision layers additional uncertainty onto supply chains already stressed by tariff volatility.

The Strongest Counterargument

A widening deficit is not automatically a crisis. Some economists argue that strong domestic demand is a feature, not a bug, and that a firmer dollar and robust consumer spending naturally pull in more imports. Guatieri's note reinforces this view. Pre-tariff front-running by businesses is also a one-time distortion, not a structural collapse in competitiveness. If companies stockpiled in May, import demand could cool sharply in subsequent months, and the June and July numbers may look very different.

The trend over four consecutive months of import gains totaling 11.7% is difficult to dismiss as pure timing noise.

What Comes Next

The May trade figures feed directly into Q2 GDP estimates that will be published later this month. If the Atlanta Fed's GDPNow model holds anywhere near its current trajectory, net exports will be the largest single drag on second-quarter growth. The June trade report, which will capture the first full month after the USMCA non-renewal and any new tariff escalations, will be the next concrete test of whether May was a one-month spike or the start of a sustained widening.