Trade gap widened with Asia

February 19, 2026

US trade deficit expanded 32.6% in December to $70.3 billion, much more than market expectations for a lateral move. High-frequency trade data had shown more import activity at the tail end of the year. The deficit in dollar terms increased $17.3 billion after a $24.3 billion expansion in November. That is the second largest two-month change in the trade deficit on record going back to 1992, behind only the two months ending in January 2025 when importers stocked up ahead of tariffs. Imports increased 3.6%, while exports declined 1.7%. For the full year 2025, the deficit only declined 0.2%, or $2.1 billion, from 2024, in spite of sweeping trade policy changes.

The headline change in the trade deficit needs to be adjusted for the purposes of the GDP calculation. Changes in import and export prices soften the headline; the real goods trade deficit increased 14.8%, versus a 19% increase before adjusting for inflation.

Exports and imports of nonmonetary gold (for investment purposes) contributed significantly to the headline change, but does not figure into GDP. Exports declined -$5.0 billion, but nonmonetary gold declined -$7.1 billion, accounting for even more than the entire decrease.

Imports increased $12.2 billion total; nonmonetary gold accounted for $1.8 billion. After taking out nonmonetary gold, the trade deficit expanded $6.9 billion, or 7.3%, far less than the headline. The two-month change in the trade deficit after adjusting for gold is a 38.4% expansion, a large move for 4th quarter GDP.

Imports increased approximately $10 billion after adjusting for nonmonetary gold. The main drivers continued to be high-tech imports. Capital goods increased $5.6 billion; $3.4 billion of that was in computer accessories, followed by a $1.3 billion increase in telecommunications equipment. Industrial supplies increased $5.1 billion on gains in copper, crude oil, iron and steel and precious metals. Automotive imports increased $1.2 billion for finished passenger cars and trucks; movements in the dollar versus other major trading partners' currencies, like the Japanese yen and Korean won, have made it cheaper to import than manufacture domestically. Imports of services fell $2.0 billion; that was mainly Americans traveling abroad.

The only category to decline in imports was consumer goods, down $3.5 billion. All of that ($4.6 billion) was in pharmaceutical preparations, which have been undergoing whiplash for three months in a row given changes to the tariff structure. The remaining categories posted small gains, with the exception of cell phones which rose $493 million.

Exports increased $1.6 billion after accounting for nonmonetary gold. That is still weak after months of underlying weakness that nonmonetary gold has been masking. Exports of high-tech goods gained $2.5 billion. More than half of that showed up in semiconductor exports, computers and computer accessories, where easing tensions were reported between the US and China by the end of the year. The same can be said for soybean exports, up $333 million. Civilian aircraft accounted for much of the remainder of increases.

Consumer goods gained ground, adding $1.8 billion; $1.3 billion was in pharmaceuticals. High-tech and luxury goods like cell phones, jewelry and artwork made up the balance.

Exports of services increased half a billion, most in travel-related exports. Weakness in exports occurred mostly in industrial supplies, even after discounting for gold. We saw declines in exports of precious metals, copper, liquid natural gas and other fuels, as well as organic chemicals. Exports of vehicles and parts posted a small decline of $109 million.

The increase in the deficit was fairly broad-based by trading partner and mainly reflected the mixture of products, with a few notable exceptions. The deficit with Europe expanded by $8.7 billion, but nearly all of that can be explained away by trade in nonmonetary gold with Switzerland. The US deficit with the EU actually shrank slightly. However, deficits with major Asian partners like Japan, South Korea, Malaysia, Taiwan, India, Thailand and Vietnam expanded.

The US trade balance with South/Central America and Africa shrank. The deficit with our neighbors in North America expanded slightly; the deficit with Canada increased while it narrowed with Mexico, breaking from the trend.

The only country in the Pacific region to show a notably smaller deficit with the US was China. That came from notably larger exports, likely deals reached at the end of the year on soybeans and semiconductors.