The U.S. trade deficit narrowed for the second consecutive month in May as imports were curtailed from lower expenditure on goods from American households dovetailed with a spike in energy exports.

 

The U.S. Commerce Department reported on Thursday that the month of May saw the trade gap in goods and services dip 1.3% from the previous month to US$85.5 billion, a decrease from April’s US$86.7 billion.

 

In its first decline this year, imports of consumer goods nosedived US$1.5 billion as Americans scaled back demand for goods in favor of services with elevated consumer prices putting a damper on demand.

 

Retailers continue to carry excess inventory as supply-chain disruptions resulted in misjudged overstocking, reducing demand for fresh imports.

 

Economists suggest a shrinking trade gap will help improve second quarter economic growth slightly, but the overall impact on the U.S. economy is likely to be minimal as conditions perceptibly slow.

 

Speaking with Bloomberg, Chief U.S. Economist at Oxford Economics Kathy Bostjancic suggests that “the slower pace of trade flows in categories other than energy” indicate “weaker economic momentum globally.”

 

And that could turn out to be a silver lining for investors.

 

With growing signs that the U.S. economy is already in a slowdown, if not recession, and the U.S. Labor Department’s inflation print for June likely to come it lower than in May, the U.S. Federal Reserve may have the necessary cover to dial back its aggressive pace of hikes.

 

Fewer imports and the imported inflation that comes with it, could help to moderate the pace of price increases, but the Fed will want to see at least several months of inflation starting to trend back to targets before it takes its foot off the gas when it comes to tightening.

 

In one of its fastest policy U-turns in recent times, Beijing abruptly reversed its vaccine mandate in a rare concession to criticisms from Chinese citizens.
 
Less than 48 hours after announcing its first ever vaccine mandate that would require vaccination to enter public venues, instead, Beijing has reverted to its existing zero-Covid strategy.
 
All public venues are accessible provided that people are able to provide a negative Covid test that’s no older than 72 hours and have their temperature checked.
 
The abrupt policy backpedaling will deal a major blow to investors hoping that a vaccine mandate could have helped to reopen the Chinese economy and normalize business operations.  
 
Beijing had announced on Wednesday that from July 11, entry to public venues such as cinemas, museums and theaters would be restricted to only vaccinated people, as well as requiring workers in specific sectors to receive booster shots.
 
But public backlash to the new measures was swift, with some Chinese taking to social media to call the requirement and illegal limitation on their freedom and draw into sharp focus the actual efficacy of Chinse vaccines against the far more virulent omicron variant.
 
Yet Beijing backing down from the vaccine mandate is a rare display of acquiescence to a population that the Communist Party has immense power over.
 
Daily movements are already restricted by a complex system of health codes, and hundreds of millions of people are already subject to frequent Covid testing, with cities of tens of millions of people shoved into lockdown on just a handful of cases.
 
Beijing’s inability to enact a vaccine mandate means that it will continue to be bogged down by economically disastrous zero-Covid lockdown policies of its own manufacture.
 
China has refused to accept foreign mRNA vaccines which have been proved to be more effective and doubled down on lockdowns and other restrictions to curb outbreaks.
 
But a seemingly endless cycle of lockdowns and a refusal by the population to vaccinate means that there aren’t any easy or clear paths for China to exit its pandemic footing in the short to medium term, putting further pressure on the economy.
 
With demand for Chinese imports already slowing in the U.S., with the trade deficit at its lowest level in years, Beijing may need to spend more on infrastructure projects that it doesn’t need to stimulate demand.
 
And while such misplaced stimulus would provide a momentary boost to the economy, such gains are illusory and lack the durability that stronger domestic consumption could have provided in the absence of rolling lockdowns.