The U.S. trade deficit expanded dramatically in July, increasing 32.5% to $78.3 billion, according to a report from the Commerce Department’s Bureau of Economic Analysis cited by Reuters. This surge was driven by a record influx of capital goods and other merchandise, which pushed imports up sharply and, if the trend continues, could result in trade acting as a drag on GDP for the third quarter.

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Imports soared by 5.9% to reach $358.8 billion, with goods imports climbing 6.9% to $283.3 billion. A significant $12.5 billion increase in industrial supplies and materials, largely due to a $9.6 billion rise in nonmonetary gold, contributed to this growth. Data from the IndexBox platform further illustrates the volatility in import categories. Capital goods imports hit a record $96.2 billion, driven by computers and industrial machinery, while imports of motor vehicles and pharmaceuticals declined. Petroleum imports fell to their lowest level since April 2021.

Exports saw minimal growth, rising only 0.3% to $280.5 billion. A record $59.9 billion in capital goods exports, supported by civilian aircraft and computer accessories, was offset by a substantial $1.5 billion drop in excavating machinery exports. The goods trade deficit with China widened by $5.3 billion to $14.7 billion, contributing to an overall goods trade gap of $103.9 billion. The trade policies of President Donald Trump, including tariffs that have pushed the nation’s average tariff rate to its highest since 1934, have been cited as a cause for these significant fluctuations in trade flows.

These trade dynamics have had a profound impact on GDP, which grew at a 3.3% annualized rate in the second quarter after trade contributed a record 4.95 percentage points, a sharp reversal from the record 4.61 percentage-point subtraction in the first quarter.

Source: IndexBox Market Intelligence Platform