Some trade deficit whiplash

Summary

Marketplace Morning Report: "Some Trade Deficit Whiplash"
Release Date: June 5, 2025
Host: David Brancaccio

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Shrinking Trade Deficit: A Sudden Reversal

David Brancaccio opens the episode by highlighting a significant shift in the U.S. trade deficit. In April, the gap between what America imports and exports narrowed by an unprecedented percentage, marking the most substantial monthly reduction on record.

"The difference between what America imports and what it exports shrank by the most ever recorded in a single month."
— David Brancaccio [00:46]

Economic Insights with Diane Swonk

Joining Brancaccio is Diane Swonk, Chief Economist at KPMG, who delves deeper into the factors driving this sharp change.

"It's a bit of whiplash here. We saw 55.5% narrowing of the trade deficit in April. That is simply stunning."
— Diane Swonk [01:17]

Swonk explains that the previous month saw the largest-ever widening of the trade deficit, primarily due to reduced imports from Ireland, notably pharmaceuticals. She attributes this to "front running of tariffs," where companies anticipated tariff implementations by accelerating their imports beforehand.

"Pharmaceuticals are actually on the list of things to be tariffed even separately... there was a lot of front running in the first quarter, so we didn't see as many in April."
— Diane Swonk [01:56]

Additionally, Swonk notes a drop in gold bullion imports from Switzerland, a carryover from the first quarter surplus, which contributed to the deficit narrowing.

Employment Implications and Manufacturing Sector

Brancaccio shifts the discussion to employment, anticipating the upcoming employment report. Swonk provides a cautious outlook, suggesting only a minor impact from new tariffs on manufacturing activity.

"We could see a very minor imprint from the new tariffs manufacturing activity."
— Diane Swonk [02:29]

She highlights that previous steel tariffs, initially at 25%, were recently increased to 50%, resulting in the creation of 1,000 jobs in the steel industry but adversely affecting 75,000 jobs in other manufacturing sectors due to higher input costs.

"Those steel tariffs actually created 1,000 jobs in the steel industry at the expense of 75,000 in manufacturing because of higher input costs."
— Diane Swonk [03:11]

Service Sector Slows Amid Tariff Pressures

The service sector experiences its first decline in activity in about a year, as reported by the Institute for Supply Management (ISM). Henry Epp discusses how higher import taxes are indirectly affecting service businesses by increasing their operational costs.

"Higher import taxes are trickling into the service sector because even if they're not selling goods, service companies have to buy goods to operate."
— Henry Epp [03:38]

Shannon Grine, an economist at Wells Fargo, emphasizes that service companies are facing rising costs for essential items, such as lighting and furniture for new restaurants.

"You need the lighting and you need the chairs and you need the tables and you need all the things that set that operation up."
— Shannon Grine [03:56]

Epp adds that while businesses had stocked up in April to mitigate tariff impacts, they are now forced to restock at higher prices, signaling that consumers may soon feel the effects more directly.

"As they work through that inventory, they'll have to restock at higher prices... consumers will start to feel more of a pinch from tariffs as the summer goes on."
— Henry Epp [04:12]

Stock Market Update

Henry Epp provides a brief overview of the stock market's performance:

• Dow Jones: Down 114 points (3.10%)
• S&P 500: Down 2.10%
• Nasdaq: Down 2.10%

He also notes that the European Central Bank has cut interest rates by a quarter percentage point in response to declining inflation.

"The European Central Bank was able to cut interest rates by one quarter of a percentage point this morning. With inflation there dwindling."
— Henry Epp [04:46]

Regulatory Battle Over Prediction Markets

The episode transitions to the emerging trend of prediction markets, where companies like Kalshi and platforms like Robinhood offer predictive contracts on various events, from election outcomes to economic indicators. However, this innovation faces regulatory challenges from several states viewing these contracts as gambling.

Scott Moscione from WYPR reports on the situation:

"Predictive contracts let people with a hunch try to cash in on that hunch for guesses about all kinds of things."
— Scott Moscione [06:14]

Sarah Slane, Head of Corporate Development at Kalshi, explains the mechanics:

"Trade prices fluctuate on demand, but the payout is always $1 per contract. If you're right, you get $1 per contract; if wrong, you get nothing."
— Scott Moscione [06:37]

The regulatory clash is characterized as a "federalism fight," with states issuing cease and desist orders against Kalshi and Robinhood, while the Federal Commodity Futures Trading Commission has so far favored Kalshi.

"At the end of the day, this is a federalism fight."
— Shannon Grine [07:44]

"The states seem to be losing... state attempts to challenge that in court have so far failed."
— Scott Moscione [07:57]

Spotting Deepfakes: A Growing Concern

In a segment focused on technology, Brancaccio introduces a Northwestern University-developed test for identifying deepfake videos. Researcher Matt Groh outlines key indicators to spot deepfakes:

"Anatomical implausibilities... stylistic artifacts... violations of physics... socio-cultural implausibilities."
— Shannon Grine [08:39]

Groh emphasizes the importance of critical thinking and awareness in discerning authentic content from manipulated media.

Conclusion and Call to Action

Before concluding, Brancaccio encourages listeners to participate in an anonymous survey for a chance to win a $75 gift card, aiming to gather audience feedback to improve future episodes.

"When you've completed the survey, you do all of us at Marketplace a huge favor by filling it."
— David Brancaccio [09:15]

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This episode of Marketplace Morning Report provides a comprehensive overview of the latest economic developments, including the dramatic narrowing of the U.S. trade deficit, the ripple effects of tariffs on both manufacturing and service sectors, stock market movements, the regulatory landscape surrounding prediction markets, and the challenges posed by deepfake technology. David Brancaccio, alongside expert guests, offers valuable insights into how these factors interconnect and their potential impacts on the broader economy.

Transcript

[David Brancaccio]

Hey there and thanks for listening. We want to know more about our audience. Stick around at the end of this episode to hear about how you can help, provide feedback and have a chance to walk away with a $75 gift card.

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[David Brancaccio]

Some states look at prediction markets online and say, wait, isn't that just betting? I'm David Brancaccio in Los Angeles. First, there's news. The difference between what America imports and what it exports shrank by the most ever recorded in a single month. Goods and services imports way, way down. But to understand what really happened in April, you have to appreciate what happened the month before, given changing trade policy. Diane Swonk is chief economist at the audit, tax and advisory firm KPMG.

[Diane Swonk]

It's a bit of whiplash here. We saw 55.5% narrowing of the trade deficit in April. That is simply stunning. And it follows the largest widening of the trade deficit the first quarter on record. Now a big part of that narrowing was a reduction in imports from Ireland of all places. Well, guess what we get from Ireland? Pharmaceuticals. And in fact we saw a lot of front running of tariffs. Pharmaceuticals are actually on the list of things to be tariffed even separately in addition to the country 10% tariffs that we see out there. And there was a lot of front running in the first quarter, so we didn't see as many in April.

[David Brancaccio]

And what's this with Switzerland? We actually imported a lot more something here. I mean it's not cuckoo clocks, it's gold bullion.

[Diane Swonk]

We imported a ton of gold bullion in the first quarter from Switzerland. And so now that we got it here, we don't need to import it again.

[David Brancaccio]

Now tomorrow will be the big employment report and the big hiring report. We didn't see the new tariffs reflected much in the employment reports from the earlier month. You think we' start seeing it tomorrow?

[Diane Swonk]

We could see a very minor imprint from the new Teros manufacturing activity. Some manufacturers actually had to idle production because some parts didn't make it in already due to disruptions from trade and the manufacturing sector. Certainly the national association for Manufacturers. Their optimism index absolutely plummeted in May and that was before we saw the steel tariffs. We know from 2018, 2019 the steel tariffs of only 25% and this is now a 50% on top of that. Those steel tariffs actually created 1,000 jobs in the steel industry at the expense of 75,000 in manufacturing because of higher input costs.

[David Brancaccio]

Diane Swonk, Chief Economist, kpmg. Thank you for the briefing.

[Diane Swonk]

Thank you.

[David Brancaccio]

Maybe the clip art for economic output might be a factory with a smokestack, but the service sector is also a huge part of what we do. And there is news. Service sector activity has fallen for the first time in about a year. The May data is from a survey conducted by by the Institute for Supply Management. It found a lot of business people focused on tariffs. Marketplaces.

[Henry Epp]

Henry Epp has that higher import taxes are trickling into the service sector because even if they're not selling goods, service companies have to buy goods to operate. And a lot of those goods were subject to new tariffs last month. Take a new restaurant for example, says Shannon Grine, an economist at Wells Fargo.

[Shannon Grine]

You need the lighting and you need the chairs and you need the tables and you need all the things that set that operation up.

[Henry Epp]

Companies in food, service, to retail, to finance and insurance all reported paying more for the stuff they needed in May, according to the ism. But what's not clear yet, Grind says.

[Shannon Grine]

How sustained or sticky is this price pressure?

[Henry Epp]

It'll take a few months to find out. What this report does show is businesses across the economy have been trying to prepare for the impact of tariffs. Many stocked up in April, but as they work through that inventory, they'll have to restock at higher prices, says Betsy Stevenson at the University of Michigan. So now, she says, the things companies have done to try to brace for the storm, it's, it's starting to not be enough. And soon, she says consumers will start to feel more of a pinch from tariffs as the summer goes on.

[David Brancaccio]

I'm Henry Epp for marketplace stock markets now open and The Dow is down 114points, 3, 10 of a percent. The S&P and the Nasdaq are both down 2.10%. The European Central Central bank was able to cut interest rates by one quarter of a percentage point this morning. With inflation there dwindling.

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[David Brancaccio]

Go to wix.com a court decision before the last presidential election allowed companies to take bets on who would win. You can also buy predictive contracts for all sorts of things things from your view on what the Federal Reserve would do on interest rates to who will win the Oscar for, say, Best Picture. But some states see this as gambling and want to treat predictive contracts as such. WYPR's Scott Masioni reports.

[Scott Moscione]

Predictive contracts let people with a hunch try to cash in on that hunch for guesses about all kinds of things who might be the next Nobel Peace Prize winner or how many tornadoes will hit the US this month. The options are taking trading apps by storm. Kalshi, the predictive market company, now pairs with online brokerage platform Robinhood to offer the options. Sarah Slane's the head of corporate development for Kalshi.

[David Brancaccio]

We do think that this is going to be one of the largest financial.

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Instruments that's out there.

[Scott Moscione]

Trade prices fluctuate on demand, but the Payout is always $1 per contract. So traders could buy 10 contracts predicting which team will win the NBA final. And if they're right, they get 10 bucks. If they're wrong, they get nothing. According to Slane, Kalshee processed more than $1 billion in prediction trades this year for just two events, the super bowl and March Madness. It's capitalizing on predictions that traders have already been making for years, like GDP.

[David Brancaccio]

Growth rates, inflation levels, unemployment, weather, derivatives.

[Scott Moscione]

Johnny El Hashim is a partner at Holland and Knight who specializes in gaming regulation.

[David Brancaccio]

But what is happening now is that.

[Shannon Grine]

We'Re could say we're like at a.

[David Brancaccio]

Crossroads where financial innovation and public regulation are colliding.

[Scott Moscione]

In a way, they're colliding because six states now say the contracts are essentially bets and are not properly regulated or taxed. They've issued cease and desist letters to Kalshee and Robinhood. It's a classic battle of state versus federal jurisdiction.

[Henry Epp]

@ the end of the day, this.

[Shannon Grine]

Is a federalism fight.

[Scott Moscione]

Andrew Kim's a partner specializing in gambling at the law firm Goodwin.

[Henry Epp]

Congress left it unclear as to what.

[Shannon Grine]

Kind of role that the state regulators.

[Henry Epp]

Should play in this space.

[Scott Moscione]

As of now, the states seem to be losing. The Federal Commodity Futures Trading Commission gave Calchi approval for trades last year, and state attempts to challenge that in court have so far failed. I'm Scott Moscione for Marketplace.

[David Brancaccio]

Can you spot super realistic deep fake videos online? Now you can take a test developed by Northwestern University to see how well you do at spotting them. At our sibling program, Marketplace Tech, our NovaSafo took the test sifting through a bunch of real and fake images. He got five out of six right, which makes him average give Nova a C. Here's researcher Matt Groh who helped develop this litmus test. A series of things to look for to spot deep fakes.

[Shannon Grine]

The taxonomy here is anatomical implausibilities like way too long neck, six fingers kind of thing. Stylistic artifacts. This is when it's too waxy or too shiny or functional. Implausibilities. That's like where the guitar strings or the tennis racket strings are not taught like you'd expect them to be. Or any other kind of thing around that violations of physics where the shadow doesn't match up with the other shadows in the scene and what you expect the source of light to be. And then socio cultural implausibilities where it just doesn't make sense with whatever the social or cultural or historic context might be.

[David Brancaccio]

Anatomical implausibilities. You can hear more of this discussion to get tips on how to spot deepfakes. It's [e-mail] a critical thinking test every time an image opens right Marketplace Morning Report from APM American Public Media really quick. Before you go, please complete a short anonymous survey by going to marketplace.org survey it should only take about 10 minutes and as a token of our appreciation, you can enter your name to win a $75 gift card. When you've completed the survey, you do all of us at Marketplace a huge favor by filling it.