U.S. May Trade Deficit Widens as Capital Goods Imports Hit Record High

• The United States (U.S.) trade deficit widened sharply in May as imports of capital goods surged to a record high, suggesting that trade remained a drag on gross domestic product in the second quarter. Efforts by businesses to avoid shortages and higher prices related to the conflict in the Middle East, as well as potential new tariffs, also contributed to the large trade shortfall, with the report ‌from the Commerce Department on Tuesday, July 7, 2026, showing overall imports rising to a 14-month high. The U.S.-Israeli war with Iran also boosted oil exports, with shipments of petroleum hitting a record high.
• Though imports will likely subtract from economic growth, their persistent strength is also a sign of resilient domestic demand. Imports are partly being driven by an artificial intelligence investment boom. The deficit swelled to a 14-month high despite President Donald Trump's tariffs on imports.
• The trade gap jumped 42.2% to $77.6Bn, the highest level since March 2025, the Commerce Department's Bureau of Economic Analysis and Census Bureau said. Economists polled by Reuters had forecast the deficit would be $78.5Bn. Part of the surge in the deficit reflected higher prices.
• Imports also increased 3.3% to $395.3Bn, ⁠the highest level since March 2025, also likely because of a strong dollar. Goods imports surged 4.0% to $317.0Bn, the highest level since April 2025, when they soared amid front-running ahead of the imposition of Trump's tariffs. Although the U.S. Supreme Court struck down the tariffs earlier this year, the White House responded with a global duty. New "Section 301" duties have been proposed. Trump has defended the tariffs as necessary to address the trade deficit and revive industries.
• Capital goods imports soared $1.1Bn to a record high $128.0Bn, lifted by large increases in imports of computer accessories and semiconductors. Imports of computers, however, dropped $3.4Bn. Businesses are spending heavily on AI, whose buildup is heavily reliant on imports. Higher capital goods imports typically imply strong business investment, but economists said rising prices made it difficult to estimate the impact. When adjusted for inflation, capital goods imports fell to $108.7Bn from $110.5Bn in April.
• The U.S. continued to run goods trade deficits with a range of countries, including Vietnam, Mexico, Taiwan, China, Canada, Germany, South Korea, India and Ireland, despite Trump's tariffs. The U.S. has declined to extend the U.S.-Mexico-Canada Agreement without changes, and ⁠economists said swelling ​deficits would make the negotiations tougher. But goods trade surpluses were posted with a number of countries, among them the Netherlands, Hong Kong, Australia, the United Kingdom and Brazil.

(Sources: Reuters & Yahoo News)