US trade deficit widens sharply in May as capital goods imports hit record high

[WASHINGTON] The US trade deficit widened sharply in May as an artificial intelligence investment boom helped to drive imports of capital goods to a record high, suggesting that trade remained a drag on gross domestic product in the second quarter.

The trade gap jumped 42.2 per cent to US$77.6 billion, the Commerce Department’s Bureau of Economic Analysis and Census Bureau said on Tuesday (Jul 7). Economists polled by Reuters had forecast the deficit at US$78.5 billion.

Imports increased 3.3 per cent to US$395.3 billion, with imports of capital goods soaring to a record high of US$128.0 billion.

Businesses are spending heavily on AI, whose buildup is heavily reliant on imports. Exports dropped 3.2 per cent to US$317.7 billion, though shipments of petroleum were the highest on record amid the Middle East conflict. The US is a net oil exporter.

Trade has subtracted from GDP for two straight quarters. The Atlanta Federal Reserve’s model is currently forecasting GDP increasing at a 1.2 per cent annualised rate in the second quarter. The economy grew at a 2.1 per cent pace in the January-March quarter. REUTERS