Picking up from this morning's GDP thread: The wild swings in net exports that flattered headline GDP weren’t just a statistical artifact - they reflect massive, tariff-driven volatility in the underlying goods trade. Let’s take a closer look in the🧵

Real imports of goods collapsed in Q2 after a huge front-loading surge in Q1. ▪ Consumer goods were the biggest drag ▪ Automotive imports also reversed sharply ▪ Industrial supplies & materials also swung notably Imports of these goods had previously surged in Q1 during the frontloading phase, and thus importers had little need for more inventory in Q2 as the initial stockpiling will take some time to work through.

Tariffs aren’t yet having the administration’s desired effect of stimulating export activity… In fact, after a modest increase in Q1, goods exports contracted in Q2 by the most since early 2023. The net result of wild swings in imports and exports? Wild swings in the net trade balance and its contribution to GDP growth.

Zooming in a bit on real goods exports, we can see that auto and industrial exports accounted for nearly all of the Q2 drag. The industrial drag is a continuation of the Q1 decline, while the auto plunge in Q2 far exceeded the modest bump in Q1.

While the most severe front-loading activity should be behind us, continued trade war escalations and pauses will prolong the distortions and drag on the economy. Thus, expect the tariff-induced volatility to continue to a lesser degree over the remainder of the year.