The U.S. trade deficit fell to a seven-month low in April as exports rose to a record high, lifted by an increase in shipments of industrial materials and soybeans.
Wednesday's report from the Commerce Department was the latest sign of robust economic growth in the second quarter.
But a protectionist trade policy being pursued by President Donald Trump, which has seen the United States slapping tariffs on imports from a host of countries including China, Mexico and Canada, as well as those in the European Union, poses a threat to the otherwise rosy economic outlook.
"One is hard-pressed as to not concur that the U.S. economy not only remains on solid footing, but is likely to show an accelerated pace of growth in the second quarter," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Still, "trade tensions remain a threat to the outlook and clearly have the potential to derail economic growth," he said.
The Commerce Department said the trade gap narrowed 2.1 percent to $46.2 billion, the smallest since September. Data for March was revised to show the trade deficit falling to $47.2 billion, instead of the previously reported $49.0 billion.
Economists polled by Reuters had forecast the trade deficit unchanged at $49 billion in April. When adjusted for inflation, the trade gap narrowed to $77.5 billion from $78.2 billion in March. The so-called real trade deficit is below its $82.5 billion average in the first quarter.
If the trend in the real trade deficit is maintained, trade could contribute to gross domestic product in the second quarter after having a neutral impact in the January-March period.
Prices for U.S. Treasuries were trading lower. The dollar fell against a basket of currencies while stocks on Wall Street rose.
Trump in March announced tariffs on steel and aluminum imports to protect domestic industries from what he says is unfair competition from foreign producers. Last week he extended the duties to steel and aluminum imports from Canada, Mexico and the European Union.
Mexico has retaliated with measures targeting a wide range of U.S. farm and industrial products. Canada has said it would slap tariffs on imports from the United States, including whiskey, orange juice, steel, aluminum and other products.
Exports to Mexico, Canada and the European Union have recorded double-digit growth so far this year.
RISKY TRADE STRATEGY
"We fail to understand the strategy of risking a trade war with Europe, Canada, and Mexico particularly at a time when the U.S. appears to be expanding strongly in these markets," said John Ryding, chief economist at RDQ Economics in New York.
A trade war is also brewing with China. Washington and Beijing have threatened tit-for-tat tariffs on goods worth up to $150 billion each. Trump claims the United States is being taken advantage of by its trading partners, but economists warn that tariffs will undercut the economy, raising prices and destroying jobs for Americans.
Economists say tariffs will do little to shrink the trade deficit, partly because of the dollar's status as the global reserve currency and the low U.S. saving rate, including a fiscal deficit that has been blown up by a $1.5 trillion tax cut package.
The politically sensitive goods trade deficit with China increased 8.1 percent to $28.0 billion in April. The United States had a $0.8 billion goods trade deficit with Canada and a $5.7 billion shortfall with Mexico.
Exports of goods and services rose 0.3 percent to a record $211.2 billion in April. It was the third monthly increase in exports. They were in April supported by a $1.3 billion increase in deliveries of industrial supplies and materials such as fuel oil and petroleum products.
Exports of industrial supplies and materials were the highest on record in April. Soybean exports increased $0.3 billion and corn shipments also rose by a similar amount. But exports of commercial aircraft tumbled $2.8 billion.
Imports of goods and services slipped 0.2 percent to $257.4 billion in April. Imports of consumer goods dropped $2.8 billion, weighed by a $2.2 billion decline in imports of cellphones and other household goods.
Motor vehicle imports fell $1.0 billion. Economists said the drop in imports was likely temporary given strong domestic demand. Crude oil imports rose $1.0 billion in April, with prices averaging $54.50 per barrel.
"American consumers' love affair with exotic foreign goods remains ongoing," said Chris Rupkey, chief economist at MUFG in New York. "Many U.S. companies are also hooked on foreign goods to help make their own finished products as well."