Trade deficit widens by record margin

March 6, 2025

The US trade deficit widened to $131.4 billion in January, a 34% increase from December, the largest deficit reading on record by a wide margin. That $33 billion increase dwarfs the second highest increase of $15 billion in March 2022. Imports increased much more than exports as importers hedged anticipated tariffs. The deficit has increased 96.5% year-over-year, up from 17% the previous month.

Imports rose 10%, mainly goods, while services imports were essentially flat. The monthly trade report does not adjust for inflation. Inflation-adjusted imports rose 9.7%. Imports of industrial supplies rose $23.1 billion; $20.5 billion of that increase was in finished metal shapes, which include steel and aluminum. Steel and aluminum prices surged since December on tariff fears. Tariffs are slated to go into effect on the two metals on March 12th.

Imports of chemicals, steelmaking materials, iron, steel mill products and natural gas posted smaller gains. Imports of nonmonetary gold continued to increase although it is not included in the GDP calculation. Many inputs in production showed up in inventories; wholesaler inventories rose 0.7% on both durables and nondurable goods.

Capital goods imports posted gains of $4.6 billion, mainly on computers and their accessories, telecommunications equipment and aircraft. Consumer goods imports increased $6 billion. Again, the largest gains showed up in categories threatened with tariffs; pharmaceuticals increased $5.2 billion while cell phones increased $1.2 billion. Retailers stocked up 0.8% outside of motor vehicles and parts. Imports of passenger cars rose $1.0 billion in spite of retailers draining inventories to meet rebuilding demand after devastating hurricanes.

Exports increased 1.2% after falling in December. After adjusting for inflation, exports fell, down -0.1%. Exports have been weak for some time as a strong dollar and weak growth abroad have weighed on goods exports. Exports of capital goods rose $4.2 billion. Much of that increase was in civilian aircraft, where production is still ramping up from a strike last year. Exports of semiconductors and computers increased. Consumer goods exports increased $1.7 billion on pharmaceuticals and jewelry. Exports of services increased $0.6 billion on broad-based gains in financial services, business services and telecommunications equipment.

Some categories of exports posted declines, which suppressed the overall number. Exports of agricultural products fell $1 billion, mainly on soybeans. Industrial supplies fell $400 million though all of that decline can be accounted for by a $1.3 billion drop in nonmonetary gold exports. That means that the deficit which is counted in the GDP may not reflect the full 34% increase in January. Finally, exports of passenger cars fell $840 million.

The increase in the monthly deficit was concentrated in certain goods, but was also concentrated by country. The deficit with Ireland doubled as importers stocked up on pharmaceuticals, while the deficit with China increased by over $6 billion, likely on the hedging of steel and aluminum. Other notable increases were in the US deficit with: 1) Switzerland, which increased to $22.1 billion from $13 billion in December (nonmonetary gold); 2) Taiwan, which increased to $7.7 billion from $6.5 billion (high-tech manufacturing); 3) Vietnam, which increased to $12 billion from $10.4 billion (manufactured consumer goods); and, 4) Canada, which increased to $11.9 billion from $8.5 billion (steel and aluminum products).