US trade gap swells as Trump renews scrutiny of deficits

WASHINGTON: 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 finished 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 25pc tariff on Mexican and Canadian goods until next month.

An additional 10pc levy on goods from China went into effect on Tuesday. Though the new administration has mostly explained the tariffs as related to controlling illegal immigration and movement of illicit drugs, the surge in the deficit could strengthen its argument for a protectionist trade policy.

“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 25pc 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 24.7pc to $98.4bn, the highest since March 2022, from a revised $78.9bn in November, the Commerce Department’s Bureau of Economic Analysis (BEA) said.

It was the second-largest deficit on record and the monthly increase was biggest since March 2015.

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

Imports increased 3.5pc to an all-time high of $364.9bn. Goods imports soared 4.0pc to $293.1bn. They were boosted by a $10.8bn jump in industrial supplies and materials, mostly reflecting a $9.2bn increase in finished metal shapes, mostly from Switzerland.

That raised doubts among some economists that front-loading of imports was the whole story behind the surge in the trade deficit.

“Switzerland is pretty far from the top of President Trump’s tariff hit list,” said Stephen Stanley, chief US economist at Santander US Capital Markets. “I assume that this is just a fluky one-off, which means that there is a good chance that the trade gap recedes substantially in January, unless the import-ahead-of-tariffs dynamic kicked in vigorously last month.” A survey from the Institute for Supply Management (ISM) on Wednesday showed services businesses feared higher prices and input shortages from tariffs in January.

Some providers of professional, scientific and technical services reported “the threat of tariffs is causing prices to rise,” adding that “the threat of unstable international markets is resulting in shortages for various materials.” Businesses in the real estate, rental and leasing sector said the “concern going forward is the cost of materials and project work, if any tariffs go into effect.” The ISM’s nonmanufacturing PMI slipped to 52.8 last month from 54.0 in December.

Steve Miller, chair of the ISM Services Business Survey Committee, said “poor weather conditions were highlighted by many respondents as impacting business levels and production.” Stocks on Wall Street were trading higher. The dollar slipped against a basket of currencies. US Treasury yields fell.

Weak exports

The trade report showed capital goods imports increased $1.3bn, 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 $2.2bn, driven by toys, games and sporting goods, cell phones and other household goods.

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

Exports of industrial supplies and materials, which include petroleum, dropped $1.8bn. Capital goods exports declined $1.4bn while those of automotive vehicles, parts and engines fell $0.9bn. The goods trade deficit jumped 18.2pc to a record $123.0bn. Adjusted for inflation, the goods deficit widened 15.4pc to $111.9bn. The goods trade deficit with Canada increased $2.9bn to $7.9bn in December. While the goods trade gap with China narrowed in December, it increased to $295.4bn in 2024 from $279.1bn in 2023. The shortfall with Mexico contracted to $15.2bn from $15.4bn in November.

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

Published in Dawn, February 6th, 2025