The US trade deficit drifted lower in March despite record imports from Mexico and a drop in total exports, the Commerce Department reported Thursday.
Rising oil import prices, which hit a near two-year record, helped fuel the trade deficit, which has become a central focus of the Trump administration's nationalist economic agenda.
The trade gap slipped 0.1 percent in March to $43.7 billion, seasonally adjusted. Analysts had expected the deficit to rise by 1.4 percent, according to a consensus forecast.
Imports from Mexico hit $28.1 billion, their highest on record, pushing the deficit with the southern neighbor to its highest level in nearly 10 years.
President Donald Trump is poised to renegotiate the North American Free Trade Agreement, which links Canada, Mexico and the United States, and has threatened to pull out unless the US gets a favorable deal. He has called NAFTA a "disaster."
For the first three months of the year, the trade gap was 7.5 percent higher than the same period in 2016.
"This is a modest pleasant surprise," Ian Shepherdson of Pantheon Macroeconomics said in a client note. "The advance data pointed to a small increase in the deficit."
The flow of US goods and services to several trading partners criticized by the Trump administration were robust in the latest month.
Exports to the European Union and South Korea hit all-time monthly records at $25.7 billion and $4.4 billion respectively, while exports to Germany were the highest in nearly nine years at $5 billion.
- 'Lopsided trade' -
But a four-year record for Japanese imports, valued at $13.3 billion, saw the US deficit with that country hit its highest level since April 2008 at $7.6 billion.
"The United States can no longer sustain this inflated trade deficit with our closest trading partners," Commerce Secretary Wilbur Ross said in a statement.
"The Trump administration is committed to rebalancing our trade relationships in order to protect American workers and businesses from lopsided trade relationships."
The trade deficit with China, habitually the largest of all US trading partners, has nevertheless improved by 2.5 percent so far this year, Ross said.
Monthly oil imports rose to their highest level in nearly four years at 260 million barrels, helping push the petroleum deficit to $7.9 billion, its highest level since July 2015.
Production cuts agreed to last year by petroleum producing countries helped drive up the average import price to $49.33, the highest since August 2015.
Shepherdson of Pantheon Macroeconomics also noted that goods exports, excluding oil and aircraft, were up 7.7 percent for the month, the best performance since October 2011.