No doubt about it – as revealed by the latest (advance) official U.S. economic growth figures, the first quarter of …Continue reading →
No doubt about it – as revealed by the latest (advance) official U.S. economic growth figures, the first quarter of this year was a bad one for U.S. trade flows. One silver lining, though: The big quarterly increase in the after-inflation trade deficit – the first such rise in a year – was driven by higher imports, but the growth in foreign purchases was considerably less than that in the first quarter of 2025. Then, of course, an import surge was spurred by businesses seeking to “front run” the expected imposition of tariffs by the second Trump administration.
In addition, for Iran War-related and other reasons, this trade setback will likely prove temporary.
At the same time, the first quarter 2026 trade deficit and import deterioration troublingly came at a time when economic growth remained much weaker than in most of 2025 – when the gap was narrowing during accelerating economic growth.
The inflation-adjusted trade gap during the first quarter hit $1.0675 trillion – the highest since the record $1.3807 trillion reported for that front-running first quarter of 2025. The sequential increase of 10.20 percent was not surprisingly also the greatest since the 29.16 percent surge during that previous first quarter. But, consistent with my claim in the opening paragraph, it was a much smaller jump.
Consequently, the trade deficit’s worsening subtracted 1.30 percentage points from the first quarter’s sequential economic growth rate of 1.98 percent at real annual rates. In absolute terms, the cost of the rising deficit was second straight, and the worst such figure since a bigger trade shortfall cut 4.68 percentage points from the first quarter change in the real gross domestic product (GDP – the standard measure of the economy’s size and how it’s increased or decreased) – and indeed played a major role in the economy’s constant dollar quarterly shrinkage of -0.65 percent annualized.
Again, however, the first quarter trade damage to growth was much less than in last year’s tariff front-running first quarter.
In fact, that first quarter 2025 trade hit to GDP expansion was an all-time high in absolute terms – besting the previous record of 4.23 percentage points from fourth quarter sequential annualized growth of 6.28 percent that was set back in 1947. And it was an all-time high in relative terms – adding the 3.22 percentage point contribution to the 1.53 percent price-adjusted annualized quarterly drop in real GDP in the third quarter of 1982.
Moreover, this increase in the 1Q trade deficit was more disturbing than that of the fourth quarter, since real economic growth remained subdued (just 1.98 percent at real annual rates).
And more discouraging trade and GDP-related news: The first quarter, 2026 real trade deficit came to 4.42 percent of inflation-adjusted gross domestic product. That was higher than the 4.03 percent in the fourth quarter of 2025 and the biggest share since the 4.45 percent of the second quarter of last year – when the tariff front-running was still strong.
Total after-inflation exports in the first quarter of 2026 were $2.7694 trillion at annual rates – a new record (surpassing the third quarter’s $2.7088 trillion), and one representing more pushback versus widespread claims that the Trump 2.0 tariffs would prompt significant foreign retaliation. These new export figures were also 3.07 percent higher than the previous quarter’s $2.6868 trillion by 3.07 percent. That sequential advance was the strongest since the 3.56 percent of the third quarter of 2022.
Total real first quarter, 2025 imports were $3836.9 trillion at annual rates – a level that was the second highest ever, trailing only the $4040.2 trillion of that tariff front-running first quarter of 2025. The 4.97 percent quarterly increase was the first since the first quarter of 2025, when imports jumped by 8.39 percent.
The first quarter, 2026 goods deficit rose to $1.2473 trillion at real annual rates – the worst such figure since the $1.2508 trillion reported in the . Biggest since last year’s second quarter. And the increase of 8.45 percent from the fourth quarter, 2025 level was the fastest since the 19.46 percent in that tariff front-running first quarter of 2025.
Real first quarter, 2026 goods exports were $1.8448 trillion at annual rates up 4.26 percent from the $1.7694 trillion of the fourth quarter of 2025. The new figure represents a new record, too – passing the $1.7771 trillion from the third quarter and the quarterly increase was the greatest since the 6.44 percent in the fourth quarter of 2021, when the economy was still recovering from Covid. And of course, it stands as still more pushback versus those foreign retaliation warnings.
Yet the latest annualized quarterly goods import data showed them at $3.0921 trillion. That level was the second highest of all time (after only the $3.3322 trillion from that tariff front-running first quarter of 2025). And even though inflation-adjusted purchases from abroad rose sequentially in the first quarter for the first time since last year’s first quarter, the rate of increase (5.91 percent) was much weaker than the 11.04 percent of a year ago.
Services trade remained in surplus in the first quarter of this year, but the after-inflation level was just $188.8 billion at annual rates. That 1.26 percent sequential decline was the second straight quarterly decrease, and brought the level to its lowest since the previous first quarter ($188.5 billion).
First quarter price-adjusted services exports rose 1.02 percent to $929.5 billion annualized. That total was the second highest ever (after the $933.8 billion of last year’s third quarter).
Annualized services imports, though, at $740 billion, set their second straight record, and climbed for the third straight month. In addition, the 1.62 percent quarterly gain was the biggest since the 2.76 percent recorded in the fourth quarter of 2024.
For all this negative news, however, these constant dollar trade figures should be bolstered considerably in the next quarter or two by the Iran War. For the energy shortages created by the conflict in Europe and East Asia in particular are already being partly met by skyrocketing American exports of oil and natural gas. Of course, these export surges won’t last forever. But the same holds for the import-friendly pause in most Trump tariffs mandated recently by the Supreme Court – since new levies with much stronger legal bases seem to be on the way.
