US trade deficit widens sharply due to record high imports in Dec

The US trade deficit widened sharply in December as imports surged to a record high against the backdrop of tariff threats, which might have prompted businesses to rush purchases of foreign-made goods like metals and computers. 

The report from the Commerce Department on Wednesday showed the United States experienced significant deficits with several trade partners, including China, Mexico and Canada, which have been targeted by President Donald Trump's administration for broad or additional tariffs. Trump on Monday suspended a 25 per cent tariff on Mexican and Canadian goods until next month. 

An additional 10 per cent levy on goods from China went into effect on Tuesday. The White House said the tariffs were to "hold Mexico, Canada, and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country."  "The strength of imports appears largely driven by businesses rushing orders ahead of potential tariffs, a trend unlikely to reverse any time soon given there is still the risk of 25 per cent tariffs on Mexico and Canada next month," said Thomas Ryan, North America economist at Capital Economics.  "Even though survey data point to an imminent rebound in exports, this suggests the trade deficit will remain wide this quarter."  The trade gap increased 24.7 per cent to $98.4 billion, the highest since March 2022, from a revised $78.9 billion in November, the Commerce Department's Bureau of Economic Analysis said. The rise was the largest since March 2015. 

Economists polled by Reuters had forecast the trade deficit soaring to $96.6 billion from the previously reported $78.2 billion in November. The trade deficit swelled 17.0 per cent to $918.4 billion in 2024, the largest since 2021. 

Imports increased 3.5 per cent to an all-time high of $364.9 billion. Goods imports soared 4.0 per cent to $293.1 billion. They were boosted by a $10.8 billion jump in industrial supplies and materials, mostly reflecting a $9.2 billion increase in finished metal shapes amid tariffs on steel and aluminium imports. 

WEAK EXPORTS 

Capital goods imports increased $1.3 billion, lifted by computers as well as computer accessories. But imports of civilian aircraft fell as did those of automotive vehicles, parts and engines. Consumer goods increased $2.2 billion, driven by toys, games and sporting goods, cell phones and other household goods. 

Exports fell 2.6 per cent to $266.5 billion. Goods exports fell 4.2 per cent, the most since May 2020, to $170.2 billion. They were pulled down by a $1.8 billion decline in consumer goods. 

Exports of industrial supplies and materials, which include petroleum, dropped $1.8 billion. Capital goods exports declined $1.4 billion while those of automotive vehicles, parts and engines fell $0.9 billion. 

The goods trade deficit jumped 18.2 per cent to a record $123.0 billion. Adjusted for inflation, the goods deficit widened 15.4 per cent to $111.9 billion. 

Services imports increased $1.0 billion to a record $71.8 billion, while exports rose $0.4 billion to an all-time high of $96.3 billion. 

The government's advance gross domestic product estimate for the fourth quarter published last week showed trade had a surprisingly neutral impact on GDP after being a drag for three straight quarters. The economy grew at a 2.3 per cent annualized rate, with most of the drag coming from inventories, after expanding at a 3.1 per cent pace in the July-September quarter. 

The goods trade deficit with Canada increased $2.9 billion to $7.9 billion in December. While the goods trade gap with China narrowed in December, it increased to $295.4 billion in 2024 from $279.1 billion in 2023. The shortfall with Mexico contracted to $15.2 billion from $15.4 billion in November.  (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)