Record high imports sharply widen US trade deficit in December

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 (Feb 5) showed the US 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 US$98.4 billion, the highest since March 2022, from a revised US$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 US$96.6 billion from the previously reported US$78.2 billion in November. The trade deficit swelled 17.0 per cent to US$918.4 billion in 2024, the largest since 2021.

Imports increased 3.5 per cent to an all-time high of US$364.9 billion. Goods imports soared 4 per cent to US$293.1 billion. They were boosted by a US$10.8 billion jump in industrial supplies and materials, mostly reflecting a US$9.2 billion increase in finished metal shapes amid tariffs on steel and aluminium imports.

Weak exports

Capital goods imports increased US$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 US$2.2 billion, driven by toys, games and sporting goods, cell phones and other household goods.

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

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

The goods trade deficit jumped 18.2 per cent to a record US$123 billion. Adjusted for inflation, the goods deficit widened 15.4 per cent to US$111.9 billion.

Services imports increased US$1 billion to a record US$71.8 billion, while exports rose US$0.4 billion to an all-time high of US$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 annualised rate, with most of the drag coming from inventories, after expanding at a 3.1 per cent pace in the July-to-September quarter.

The goods trade deficit with Canada increased US$2.9 billion to US$7.9 billion in December. While the goods trade gap with China narrowed in December, it increased to US$295.4 billion in 2024 from US$279.1 billion in 2023. The shortfall with Mexico contracted to US$15.2 billion from US$15.4 billion in November. REUTERS