Trade deficit widens

September 4, 2025

The US trade deficit expanded by 32.5% in July to $78.3 billion, returning to near-2024 levels. Rising imports far outweighed a small increase in exports. Importers that still have capacity may have engaged in another round of stocking up in July prior to the August increases in tariffs; inventories rose in those categories.

The headline data masks some of the GDP implications given that it does not account for changes in prices or nonmonetary gold. (Nonmonetary gold is not counted for the purposes of GDP.) Leaving out nonmonetary gold, the deficit widened by approximately $8.8 billion, versus the headline $19.2 billion. Accounting for shifting prices shrinks the deficit still more. Prices increased on a smaller volume of imports by 0.4% versus a 0.1% increment in export prices. It is still a large increase to start the third quarter.

Nominal imports increased 5.9%, or $18.4 billion. Gold made up a large share; after stripping out gold, imports rose by approximately $8.6 billion. Capital goods drove the gains outside of gold, with computers and telecommunications equipment adding $2.4 billion. Other types of machinery and civilian aircraft showed gains. Capital goods benefit from the tailwind of the bonus depreciation provisions in the tax bill passed this year.

Consumer goods increased $1.3 billion overall as rising imports of jewelry, toys, appliances and furniture outweighed a $1.1 billion decline in pharmaceutical imports. Those have been declining for months; the industry was one of the largest to stock up earlier in the year.

Automotive imports declined for the second month in a row, down $1.4 billion for both passenger cars and (already large) grew in July, up 0.3%.

Exports rose 0.3%, or $0.2 billion. Gold accounted for some of the increase; after accounting for gold, exports declined by -$0.2 billion. Industrial supplies outside of gold and consumer goods categories showed more modest declines that were fairly broad-based; increases in those categories were small. Exports of autos remained nearly flat, up just $340 million, while capital goods increased $552 million overall as increases in computer parts and aircraft were offset by declines in exports of excavating machinery and semiconductors. Exports tend to be weaker when trade policy tightens, given the need to serve domestic demand.

One interesting note is that the surplus in services narrowed in July and is now down year-over-year for the first time since March. Imports of services rose $1.7 billion on travel and transport, but weak exports of travel services (fewer foreign travelers to the US) weighed on services exports. Services is one of the few areas that the US has a clear comparative advantage.

The deficit with Europe more than doubled from June, likely driven by Switzerland stocking up on gold as well as an increase in the deficit with Germany and a smaller surplus with the UK. It is still unclear if the tariffs on Switzerland and the EU will cover gold imports. The deficit nearly doubled with China; it increased with Taiwan as computer ordering accelerated. That could change if we get sector-specific tariffs on electronics and semiconductors. There are currently two Section 232 investigations underway that could impact orders of those products