By Lucia Mutikani
WASHINGTON (Reuters) -The U.S. 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 25% tariff on Mexican and Canadian goods until next month.
An additional 10% 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 25% 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% 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 (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 $96.6 billion from the previously reported $78.2 billion in November. The trade deficit swelled 17.0% to $918.4 billion in 2024, the largest since 2021.
Imports increased 3.5% to an all-time high of $364.9 billion. Goods imports soared 4.0% 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, 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 U.S. economist at Santander U.S. 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. U.S. Treasury yields fell.
WEAK EXPORTS
The trade report showed 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% to $266.5 billion. Goods exports fell 4.2%, 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% to a record $123.0 billion. Adjusted for inflation, the goods deficit widened 15.4% to $111.9 billion.
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.
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.
December’s data was broadly in line with the assumptions the BEA made in its advance gross domestic product estimate for the fourth quarter published last week, which showed trade had a surprisingly neutral impact on GDP after being a drag for three straight quarters.
The economy grew at a 2.3% annualized rate, with most of the drag coming from inventories, after expanding at a 3.1% pace in the July-September quarter.
“There is currently little risk of a major revision to the growth pace,” said Capital Economics’ Ryan.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
