AI boom drives deficit growth

September 3, 2026

The US trade deficit jumped 24.4% in July to $88.6 billion from an upwardly revised 71.2 billion in June. July marks the largest deficit since March 2025 and the fifth largest on record (not adjusted for inflation). 

Exports fell while imports rose, combining to widen the deficit. Growth abroad has been hit harder than in the US by the conflict in the Middle East and tariffs, while the data center boom continues. That is supporting a surge in imports of computers and computer accessories, which reached the highest level since the surge in buying ahead of the first round of tariffs imposed last year. The trade deficit widened 18% on an annual basis in the whiplash of Liberation Day. 

Since the February Supreme Court ruling that emergency powers tariffs were illegal, new tariffs and intensified enforcement at the border are expected to return the effective tariff rate to the 2025 peak of 12%. Section 301, which replaced temporary Section 122 tariffs, went into effect on July 24. These cover 60 countries and more than 99% of imports; countries are being hit with tariffs of between 10% and 12.5%.

Investigations are ongoing for sector specific tariffs related to critical minerals, copper, timber, jet engines, semiconductor inputs, wind turbines, drones and medical devices. Tariffs on pharmaceuticals, particularly generics, have been threatened to take effect in 2028, unless drugmakers move production onshore. 

Trade negotiations between the US and Canada have taken a confrontational turn with both countries levying new tariffs. The US issued 50% tariffs on $20 billion worth of goods. Canada responded with the promise of “dollar-for-dollar” tariffs to go into effect September 8. The US focused on products such as wine, dairy, electrical equipment and hockey sticks; Canada’s tariffs are expected to affect a slew of products including steel, dairy and appliances.

Declining to go forward with the existing USMCA has moved the trade pact into “zombie mode.” Annual reviews will occur until 2036, when the deal will become fully voided, if no new agreement is signed. Investment headed to Canada and Mexico will slow due to concerns about access to the US market. There is widespread concern about the agreements becoming bilateral, which would complicate logistics in the vehicle sector the most. 

Content requirements occupy the center of the negotiations. The auto sector is most at risk. Assembly of autos sends parts and partially completed vehicles across the borders of the US, Mexico and Canada repeatedly before a finished car rolls off the production line.

In late July, the European Commission announced it would continue the suspension of retaliatory tariffs. That will maintain a fragile peace with the US over steel and aluminum tariffs. The sticking point for the US is still the digital tax in the EU; more section 301 tariffs are being threatened in response to that skirmish.  

Exports dipped 2.1% in June, while imports increased 2.8%. After adjusting for inflation, the real goods deficit increased 12.7%, less than the headline indicates. A sharp drop in exports of petroleum products accounted for some of the weakness and was due to falling prices. Services exports and imports in July were largely unchanged from June.

Gold for investment purposes was a key component of changes in the trade deficit. Exports of nonmonetary gold fell $3.9 billion from June, while imports were little changed. Leaving out nonmonetary gold, the trade deficit widened by less, which means that it could be a smaller drag on third quarter GDP growth than initially estimated. 

Imports, excluding gold, rose $11.7 billion in July.  Results were mixed with strong growth from capital goods, but a dip from crude oil. The AI investment boom continues to drive imports, namely computer chips. 

Capital goods surged to a new record high, rising $14.4 billion. Both computers and computer accessories rose more than $6.6 billion. If these were removed, broader import growth would have been negative. Demand outside of AI is muted. 

Computer-related product prices have jumped over the last year. Crowding out by data centers is driving the shift. Higher memory chip prices are pushing up the cost of consumer electronics.

Semiconductor imports rose $1.2 billion to a new record. Semiconductors are considered strategic inputs and escape most tariffs via waivers.

Consumer goods rose $0.3 billion due to a $1.3 billion increase in pharmaceutical preparations. Most consumer goods products showed negative import growth during July.

Imports of industrial supplies fell $1.8 billion, on a $1.8 billion drop in crude oil imports. Oil prices rose in July on the nullified ceasefire agreement to reopen the Strait of Hormuz, but futures prices fell. Copper imports rose $1.4 billion, offsetting some of crude’s loss.  

Autos and parts slipped $0.5 billion on parts and accessories. Foods, feeds and beverages edged down $0.1 billion on fish and shellfish.

Exports fell $2 billion after accounting for nonmonetary gold. Capital goods exports increased by $1.9 billion on broad-based gains led by computers and electronic goods. Semiconductor exports reversed course after four straight months of decline, albeit by a minimal $182 million. Consumer goods increased $1.7 billion on pharmaceutical preparations. 

Industrial supplies fell $8.7 billion, of which $3.9 billion was nonmonetary gold. Crude oil exports plummeted $4.5 billion. That followed several record setting months after the closure of the Strait of Hormuz.  

Goods, feeds and beverages dipped $0.2 billion on weak soybean exports, which followed June’s large decline. Exports of autos and parts edged down $0.1 billion on passenger cars.  

The goods deficit with Mexico increased $7.2 billion to $27.5 billion due to surging imports. Mexico has been a major supplier of inputs for the AI boom. The deficit with Canada shrank $3.7 billion to $3.2 billion on lower imports.