U.S. current-account deficit widens in second quarter as goods trade gap expands

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US current-account deficit widens Q2

Highlights

The U.S. current-account deficit widens by $33.4 billion to $246 billion in Q2, primarily due to a larger goods trade gap offset partly by smaller income deficits.
U.S. net international investment position declines to negative $22.42 trillion at Q2 2026 end, compared to negative $21.27 trillion in Q1, as liabilities outpace asset growth.
U.S. liabilities grow by $4.87 trillion in Q2, fueled by $3.95 trillion in price changes and $978.9 billion in financial transactions, mainly from portfolio investment inflows.

Second-quarter balance of payments shift

As reported by U.S. Bureau of Economic Analysis, the $33.4 billion increase in the current-account deficit mainly reflects a wider goods deficit, partly offset by smaller deficits in primary income and secondary income. The first-quarter deficit is revised to $212.6 billion.

Exports of goods and services, together with income received from foreign residents, increase by $58.8 billion to $1.44 trillion in the quarter. Imports of goods and services, along with income paid to foreign residents, rise by $92.2 billion to $1.69 trillion, driven by higher goods imports and larger primary income payments.

Capital-transfer receipts decrease by $1.1 billion to $2.3 billion in the second quarter, while capital-transfer payments fall by $0.9 billion to $1.0 billion. Net financial-account transactions stand at negative $369.7 billion, reflecting net U.S. borrowing from foreign residents.

Investment position and market implications

The U.S. net international investment position stands at negative $22.42 trillion at the end of the second quarter of 2026, compared with a revised negative $21.27 trillion at the end of the first quarter. U.S. residents' foreign financial assets total $46.97 trillion, while liabilities to foreign residents reach $69.39 trillion.

U.S. assets increase by $3.72 trillion in the quarter, with gains in all major investment categories except reserve assets. The increase is driven by $3.03 trillion in price changes and $663.3 billion in financial transactions.

U.S. liabilities rise by $4.87 trillion, with portfolio investment showing a particularly large increase. That overall gain is driven by $3.95 trillion in price changes and $978.9 billion in financial transactions, indicating that valuation effects and continued foreign investment flows are adding to the country's external liabilities.

In our earlier article on the global bond selloff and surging government borrowing costs, we noted that U.S. Treasury and other sovereign yields pushed to multi-decade highs as markets priced in tighter-for-longer policy. We also highlighted how higher yields are lifting debt-servicing bills and intensifying fiscal strain, adding to broader funding pressures across both governments and corporate issuers.

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