Trade gap shrinks

January 8, 2026

The US trade deficit narrowed by a stunning 39.0% in October to $29.4 billion, the third month in a row of improvement, yielding the smallest trade deficit since June 2009. Exports increased 2.6% while imports declined 3.2%.

The adjustments we need to make for the purposes of GDP are large. We do not have an import/export price index for October; however, the release includes a real goods deficit. The real goods deficit declined by 19.8%, as opposed to 24.1% in nominal terms. That means the headline is overstating the impact to GDP. The same goes for changes in nonmonetary gold (not counted toward the GDP calculation). Nonmonetary gold made up nearly 90% of the rise in exports and about 13% of the decline in imports. That translates to a narrower deficit, closer to 12% without factoring in price changes.

Imports fell $11 billion overall, with imports of nonmonetary gold declining $1.4 billion. The main contributors to declining imports were pharmaceuticals, which fell $14.3 billion alone. They have been incredibly volatile since firms stocked up in early 2025 and may have been impacted by October trade policy announcements. Other areas that showed small declines included auto parts, oil and natural gas and fruits and vegetables.

We saw fairly sizeable increases in imports outside of those categories, which tracks with some of the supply chain data that emerged ahead of the holidays. Passenger cars, cell phones, toys and appliances showed small increases. Imports of high-tech capital goods continued their upward march given tariff waivers for the industry and the build-out of data centers to feed AI demand; computer accessories increased by $3.7 billion, telecommunications equipment by $1.9 billion while computers added $1.1 billion. Imports of services increased $1.1 billion, mainly on an increase in travel-related services.

Exports increased $7.8 billion overall, but nonmonetary gold accounted for $6.8 billion of that increase. Exports were weak outside of gold and precious metals trade. Consumer goods exports declined $1 billion, mainly on pharmaceuticals and retail diamonds, capital goods declined $626 million on weaker aircraft and computers. Weaker soybean exports continued to lead soft agricultural exports. That was partially offset by a $702 million increase in exports of automotive parts and a $700 million increase in exports of services spread across travel, intellectual property and other business services.

Results were mixed by trading partner and reflected more the mixture of products than trends in supply chain reorganization. The EU showed the largest swing, from a $10.5 billion deficit to a $8.3 billion surplus. Ireland and the UK drove pharmaceuticals while gold was key in Switzerland. We experienced slightly narrower deficits with Canada and China, but larger surpluses with South/Central America and Africa. In other regions like India and Vietnam, deficits changed little. We saw wider deficits with Taiwan, Mexico and Japan, likely reflecting the AI trade and high-tech imports.