The U.S. international trade deficit widened sharply in July, increasing 24.4% to $88.6 billion as strong domestic demand fueled a surge in imports, according to the Commerce Department’s Bureau of Economic Analysis and Census Bureau. The shortfall positions trade to exert another drag on third-quarter economic growth following a second quarter where imports similarly outpaced exports.
Economists polled by Reuters had forecast a narrower trade deficit of $90.0 billion for the month. Total imports increased 2.8% to $399.3 billion in July, while goods imports climbed 3.7% to $320.6 billion. Strong domestic demand during the second quarter combined consumer spending with heavy business investment in artificial intelligence, with much of that demand met by overseas shipments.
Capital Goods and AI-Driven Imports Hit Records
Imports of capital goods jumped $14.4 billion to a record high of $140.3 billion in July, according to federal trade data. The spike reflects sharp increases in computers, computer accessories, and semiconductors that analysts link directly to the ongoing artificial intelligence buildout.
Conversely, imports of industrial supplies and materials—a category that includes petroleum—dropped $1.8 billion. Crude oil imports fell by the same $1.8 billion margin, aided by lower global energy prices. Total exports decreased 2.1% to $310.7 billion, driven down by a 3.0% drop in goods shipments to $201.0 billion. Industrial supplies and materials exports led the decline, falling $8.7 billion due to lower shipments of crude oil and nonmonetary gold, which is excluded from gross domestic product calculations.
GDP Impact and Services Trade Balances
Trade subtracted 1.14 percentage points from U.S. gross domestic product growth in the April-June quarter, during which the economy expanded at a 1.5% annualized rate. When adjusted for inflation, the goods trade deficit increased 12.7% to $106.4 billion in July.
In the services sector, imports decreased $0.6 billion to $78.7 billion, pulled down primarily by lower charges for the use of intellectual property. Transport service imports also fell, though travel service imports increased. Services exports dipped $0.4 billion to $109.7 billion, weighed down by declines in travel, financial, and transport services, while charges for intellectual property and other business services recorded gains.
Tariffs and Record Bilateral Deficits
Despite aggressive tariffs imposed on foreign goods, the United States posted record goods trade deficits with Mexico, Vietnam, Taiwan, Thailand, South Korea, and Malaysia in July, according to government figures. The U.S. goods trade deficit with 13 key Asia-Pacific economies grew to $93.8 billion during the month.
Bilateral balances shifted elsewhere as the U.S. trade position with Switzerland swung into a deficit. Meanwhile, the U.S. trade shortfall with Canada decreased $3.7 billion to $3.2 billion in July, a period during which the two North American neighbors remained embroiled in an ongoing trade dispute.