The US trade deficit widened to an all-time high in January as businesses rushed to import goods ahead of newly imposed tariffs, raising concerns that trade could weigh on economic growth in the first quarter.
Trade Deficit Surges
The trade gap jumped 34.0% to a record $131.4 billion from a revised $98.1 billion in December, marking the largest percentage increase since March 2015, according to data from the Commerce Department’s Bureau of Economic Analysis (BEA).
Economists polled by Reuters had expected a smaller increase to $127.4 billion. The surge comes in response to President Donald Trump’s latest round of tariffs, which imposed a 25% levy on imports from Mexico and Canada and doubled duties on Chinese goods to 20%, escalating trade tensions.
Imports Reach Record Levels
Total imports soared 10.0% to $401.2 billion, the biggest increase since July 2020. Goods imports rose a record 12.3% to $329.5 billion, driven by:
- A $23.1 billion increase in industrial supplies and materials, primarily finished metal shapes, likely gold.
- A $6.0 billion rise in consumer goods, led by pharmaceutical products, cell phones, and household goods.
- A $4.6 billion increase in capital goods, including computers, accessories, and telecom equipment.
Imports of services also edged up by $0.4 billion to $71.7 billion, fueled by intellectual property charges and other business services. However, travel service imports declined.
Exports Show Modest Growth
Total exports rose 1.2% to $269.8 billion, with goods exports increasing 1.6% to $172.8 billion. Key drivers included:
- A $4.2 billion jump in capital goods, including civilian aircraft, semiconductors, and engines.
- A $1.7 billion rise in consumer goods, led by pharmaceutical preparations and jewelry.
However, food exports dropped by $1.0 billion, mainly due to a $0.8 billion decline in soybean exports. Meanwhile, service exports rose $0.6 billion to $97.0 billion, supported by financial and technology-related services.
Impact on Economic Growth
The widening trade deficit, combined with a slowdown in consumer spending, has raised concerns about a potential economic contraction in Q1. However, some economists argue that a large portion of the import surge came from gold, which is largely driven by financial market activity rather than US domestic demand.
“Most gold imports into the US are unrelated to domestic production or consumption and instead fluctuate based on demand from gold market participants, so the BEA excludes them altogether from the national accounts,” Goldman Sachs noted.
GDP Outlook
The Atlanta Federal Reserve now forecasts that US GDP will contract by 2.8% on an annualized basis in Q1, compared to a 2.3% growth rate in the previous quarter.
With ongoing trade uncertainty and tariffs impacting global supply chains, economists are closely monitoring future trade reports for signs of further disruptions.