Goods and Services Trade Deficit Expands 44 Percent to 77.6 Billion

Trump’s tariffs have done nothing to reduce the trade deficit.

Please consider the International Trade in Goods and Services report for May 2026, released today.

May exports were $317.7 billion, $10.5 billion less than April exports. May imports were $395.3 billion $12.5 billion more than April imports.
The May increase in the goods and services deficit reflected an increase in the goods deficit of $23.6 billion to $106.5 billion and an increase in the services surplus of $0.6 billion to $28.9 billion.

The lead chart shows the advance numbers for goods only. Here’s the goods and services chart.

Balance of Trade Goods and Services

Note: The St. Louis Fed data repository did not update May numbers yet. I pulled April and May rounded numbers on the above chart from the Census Department.

Trade Synopsis

Trump massively distorted trade number for a year.
There was huge tariff front running in advance of tariffs then an artificial and very misleading improvement in trade imbalances.
The deficit is now right back where it started from.

Conclusion

Short of causing a recession and thus reducing demand, tariffs will do nothing to improve trade imbalances, as called in advance on this blog.

Tariffs will not restore manufacturing jobs either, also undoubtedly proven, and again called in advance on this blog.

Fundamental Problem

The fundamental problem that tariffs (nor anything else) can fix is lack of a gold standard to enforce fiscal discipline.

When Nixon removed the gold redemption window in 1971, it allowed government expansion of debt at will, creating a reserve currency curse.

US consumers because the world’s consumers of last resort. Initially, Germany took advantage, but now it’s China flooding the world with subsidized exports.

The US is continually forced to choose between recession to slow demand or huge trade and fiscal deficits.

All the talk of the Yuan replacing the dollar as a the major reserve currency is nonsense because that would require six conditions, none of which China meets.

At the top of the list, the reserve currency holder must be willing to run trade deficits, a condition that China will not let happen.

Very few understand the fundamental problem and why tariffs cannot and will not fix these imbalances.

On August 14, 2025, I commented US Debt Now Grows by $1 Trillion Every 150 Days

US national debt just topped $37 trillion and is growing fast.

Looking at recent history, by decade, the U.S. added $1 trillion to the Debt:

Every 24 months in the 2000s, on average

Every 11 months in the 2010s, on average

Every 5 months in the 2020s, on average

Since August 14, debt rose from $37 trillion to $38.5 trillion.

If you think Trump’s tariffs are going to pay down that debt or do much to reduce deficit spending, you are more than a bit crazy.

Nearly a year has passed. I need to update the numbers.

Nixon Shock

I have been writing about the fundamental problem for nearly two decades. Here’s a synopsis from September 2019.

Please consider Nixon Shock, the Reserve Currency Curse, and a Pending Currency Crisis

In 1971 President Nixon appointed the then Democrat John Connally as Treasury Secretary. That’s when things started rolling.

Our Currency But Your Problem

Shortly after taking the Treasury post, Connally famously told a group of European finance ministers worried about the export of American inflation that the dollar “is our currency, but your problem.”

By 1971, US money supply had increased by 10%. In May 1971, West Germany left the Bretton Woods system, unwilling to revalue the Deutsche Mark. Switzerland also started redeeming dollars for gold.

On August 5, 1971, the United States Congress released a report recommending devaluation of the dollar to protect the dollar against “foreign price-gougers“.

On August 9, 1971, as the dollar dropped in value against European currencies, Switzerland left the Bretton Woods system.

On August 15, 1971 Nixon directed Connally to suspend, with certain exceptions, the convertibility of the dollar into gold or other reserve assets, ordering the gold window to be closed such that foreign governments could no longer exchange their dollars for gold. He also issued Executive Order 11615, imposing a 90-day freeze on wages and prices in order to counter inflation. This was the first time the U.S. government had enacted wage and price controls since World War II.

The American public believed the government was rescuing them from price gougers and from a foreign-caused exchange crisis. Politically, Nixon’s actions were a great success. The Dow rose 33 points the next day, its biggest daily gain ever at that point, and the New York Times editorial read, “We unhesitatingly applaud the boldness with which the President has moved.”

So Much for Temporary

The move was not temporary. There have not been any restraints on deficit spending since.

Wars became easy to finance. Deficits? No problem.

In 2011, Paul Volcker, who replaced William Miller as Fed Chair in 1979, expressed regret over the abandonment of Bretton Woods.

“Nobody’s in charge,” said Paul Volcker.

Nobody’s In Charge

Indeed!

There are zero controls on increasing deficits, massive government spending, housing bubbles, or stock market bubbles.

Inflation does not count any of the bubbles.

Credit exploded, deficits exploded, and so did trade imbalances.

We are headed for a currency crisis, timing uncertain, the same thing I have been saying for a long time.

Death of Dollar Silliness

Consider my October 25, 2017 take called Gold-Backed Petro-Yuan Silliness.

A massive amount of hype is spreading regarding China’s alleged ambitions to dethrone the dollar. The story this time involves China’s plan is to price oil in yuan using a gold-backed futures contract. Even if that were true, the impact would be zero. CNBC is now in on the hype: China has grand ambitions to dethrone the dollar. It may make a powerful move this year.

Repeat after me: It’s meaningless what currency oil is quoted in. Once you understand the inherent truth in that statement, you immediately laugh at headlines like that presented on CNBC.

Nothing has fundamentally changed regarding the yuan replacing the dollar as a major reserve currency.

Forget the Yuan

In 2018, I commented Forget the Yuan: King Dollar is Here to Stay

It’s important to understand that we are talking about the dollar’s role in trade, not the value of the dollar itself.

I have discussed the role of the yuan and petrodollar myth multiple times as well.

For my latest take, please see What Does CFR’s Brad Setser Say About Petrodollar Myth and Reality?

Setser: There is enough real data for me to refute the modern financial fairy tale that there is a big float of petrodollars sustains the dollar system.* This is fun to believe, but not really based in reality.

Manufacturing Percent of US Jobs