The U.S. trade deficit in goods widened to a record high in December, likely as businesses front-loaded imports of industrial supplies and consumer goods in anticipation of broad tariffs from President Donald Trump's new administration.
The deterioration in the goods trade deficit reported by the Commerce Department on Wednesday raises the risk of a sharper slowdown in gross domestic product growth in the fourth quarter than economists had anticipated.
The report also showed inventories at wholesalers and retailers being drawn down last month.
A wider trade deficit as a result of an influx of imports is usually offset by a rise in inventories in the calculation of GDP. The government is scheduled to publish its advance estimate of fourth-quarter GDP on Thursday. Prior to the release of the goods trade and inventory data, a Reuters survey of economists forecast GDP rising at a 2.6% annualized rate last quarter. The economy grew at a 3.1% pace in the July-September quarter.
"The record trade deficit cannot be a regular occurrence," said Jennifer Lee, a senior economist at BMO Capital Markets. "Tariffs are reportedly set to begin in three days."
The goods trade gap increased 18.0% to $122.1 billion last month, the largest since the government started tracking the series in 1992, the Commerce Department's Census Bureau said. Goods imports increased $10.8 billion, or 3.9%, to $289.6 billion. Exports fell $7.8 billion, or 4.5% to $167.5 billion.
Trump has promised to impose or massively raise tariffs on imported goods, including from China, Canada and Mexico. The tariffs on Canadian and Mexican goods could come on Feb. 1.
"The trade deficit, especially on a bilateral basis, will receive increased attention as the Office of the U.S. Trade Representative begins its examination of foreign trade practices to account for those that are unfair to the U.S., and the review of the Economic and Trade Agreement between the U.S. and China," said Kathy Bostjancic, chief economist at Nationwide.
The dollar was trading higher against a basket of currencies. U.S. Treasury yields rose.
WEAK EXPORTS
The rise in imports followed a 4.3% surge in November. Last month's advance was led by an 18.9% jump in imports of industrial supplies, which include petroleum. Imports of consumer goods increased 3.1% while those of capital goods gained 1.7%. But imports of motor vehicles decreased 5.5%.
There were also declines in imports of food and other goods.
The drop in exports reversed a 3.3% increase in November. Consumer goods exports tumbled 8.5% and those for motor vehicles dropped 6.7%. Exports of industrial supplies plummeted 4.8% and shipments of other goods decreased 6.1%. Food exports fell as did those of capital goods.
Trade has subtracted from GDP for three straight quarters. Still, the anticipated drag from trade in the October-December quarter was likely more than offset by strong consumer spending, which is keeping the economic expansion on track, thanks to a resilient labor market.
The economy is expanding well above the 1.8% that Federal Reserve officials regard as the non-inflationary growth pace.
The U.S. central bank is expected to leave its benchmark overnight interest rate in the 4.25%-4.50% range at the end of a two-day policy meeting on Wednesday, having reduced it by 100 basis points since September. The policy rate was hiked by 5.25 percentage points in 2022 and 2023 to tame high inflation.
A strong dollar because of the still relatively tight monetary policy stance could be making U.S. manufactured goods less competitive on the global market, undercutting exports.
Wholesale inventories fell 0.5% while stocks at retailers declined 0.3% last month.
