US Trade Deficit Widens 24.4% as Capital Goods Imports Hit Record High

• The U.S. trade deficit widened sharply in July, increasing 24.4% to US$88.6Bn, as strong domestic demand boosted imports. The result was slightly better than the US$90.0Bn deficit expected by economists.
• Total imports increased 2.8% to US$399.3Bn, with goods imports rising 3.7% to US$320.6Bn. Capital goods imports surged by US$14.4Bn to a record US$140.3Bn, driven by increased imports of computers, computer accessories and semiconductors, likely reflecting continued investment in artificial intelligence. However, imports of industrial supplies and materials, which include petroleum, dropped $1.8Bn. Crude oil imports fell $1.8 billion amid lower prices.
• Meanwhile, exports declined 2.1% to US$310.7Bn, as goods shipment fell 3.0% to US$201.0Bn. The decline was led by a US$8.7Bn reduction in exports of industrial supplies and materials, including crude oil and non-monetary gold.
• Consequently, the goods trade deficit widened 17.3% to US$119.6Bn in July. On an inflation-adjusted basis, the goods deficit increased 12.7% to US$106.4Bn.
• Despite the Trump administration's aggressive import tariffs, the US recorded record goods trade deficits with Mexico, Vietnam, Taiwan, Thailand, South Korea and Malaysia. However, the deficit with Canada narrowed by US$3.7Bn to US$3.2Bn.
• The sharp widening of the deficit suggests that trade could again weigh on US economic growth in Q3. Trade already subtracted 1.14 percentage points from GDP growth in Q2, when the economy expanded at a 1.5% annualised rate. However, the surge in capital-goods imports also reflects strong business investment, particularly in the ongoing AI buildout.

(Source: Reuters)