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Trade deficit boomerangs

Watch temporary factors: port negotiations, hurricanes and potential tariffs.

January 7, 2025

The US trade deficit widened to $78.2 billion in November, a 6.2% increase, as imports increased more than exports. That happened after it narrowed sharply in October; the hurricanes combined with the October port strike suppressed imports that month. Buyers in the US have been hedging against potential new tariffs from the new administration as well as a potential East and Gulf coast port strike set to occur later this month (which is already causing a surge in container shipping prices). The deficit has increased 13% since this time last year.

Imports rose 3.4% on strength in goods. Consumers and producers began to hedge potential tariffs as early as November. The largest increases showed up in capital goods and industrial supplies, particularly in high-tech industries that will likely be more vulnerable to tariffs. Semiconductors, electrical equipment, computers and finished metals drove the gains. Civilian aircraft and parts imports jumped after the strike in the aerospace industry ended.

For consumers, there were broad-based increases in vehicle and non-motor vehicle imports. Passenger cars and parts came in higher, while other big-ticket items such as pleasure boats and motors, art works and household appliances chalked up large increases. Retailers stocked up in October as inventories rose 0.3% despite a drain in vehicle inventories. Inventories added 0.6% outside of motor vehicles and parts dealers, who reported a burst in sales at the end of the year.

Overall, exports increased 2.7%, less than imports, as stronger growth at home versus abroad weighed on exporters. Exports of both goods and services increased; gains were broad-based. An outlier was the energy sector, where exports increased sharply during the month. Other notable increases occurred in passenger cars and trucks, pharmaceutical preparations and plastics. Exports of travel and transport led gains on the services side.

The monthly data on trade does not adjust for inflation. After controlling for import and export prices, the trade deficit widened in October but less than the headline indicated. Export prices stayed flat while import prices rose slightly. The goods deficit increased by 5.1% in real terms, versus 6.1% in nominal terms.

Domestic demand will likely be hit later in the year.

photo of Meagan Schoenberger

Meagan Schoenberger

KPMG Senior Economist

Bottom Line

Long-run factors such as strong domestic growth and a strong dollar, combined with temporary factors like the ongoing East and Gulf Coast port negotiations, hurricanes and potential tariffs have spurred a persistent increase in the trade deficit for 2024. The sharp decrease in the deficit in October should be enough that the fourth quarter will be the only one to post a narrowing trade deficit (slightly) but the prevailing trend will likely carry into the New Year. We expect importers will effectively increase the trade deficit by continuing to hedge in the first quarter of 2025. Domestic demand will likely be hit later in the year. 

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Meagan Schoenberger
Senior Economist, KPMG Economics, KPMG US

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