Notable Increase in the U.S. Trade Deficit During December

(WASHINGTON) - The trade deficit in the United States surged in December, likely because companies ramped up their imports in anticipation of the broad tariffs that the new administration under President Donald Trump might impose.

The trade gap rose by 18%, reaching $122.1 billion last month, according to a report from the Census Bureau of the Department of Commerce on Wednesday. Imports of goods increased by $10.8 billion, climbing to $289.6 billion, while exports fell by $7.8 billion, settling at $167.5 billion. Trump has promised to implement or significantly raise tariffs on imported goods, including those from China, Canada, and Mexico. This increase in the deficit indicates that trade likely continued to be a drag on Gross Domestic Product (GDP) in the fourth quarter. For three consecutive quarters, trade has detracted from GDP growth. The government is expected to release its preliminary GDP estimate for the fourth quarter on Thursday. According to a Reuters survey of economists, the GDP is estimated to have grown at an annualized rate of 2.6% in the last quarter, down from 3.1% in July-September. This growth significantly exceeds the 1.8% pace that Federal Reserve officials consider to be non-inflationary growth. The central bank is expected to keep its benchmark interest rate in the 4.25%-4.5% range at the end of its two-day monetary policy meeting, after cutting it by 100 basis points since September. The official rate rose by 5.25 percentage points in 2022 and 2023 to combat high inflation.

It’s interesting to observe how the trade deficit can influence not only the U.S. economy but also that of its trading partners, like Mexico. Trade policy decisions, especially during times of uncertainty, can have significant collateral effects. Staying alert to these changes is crucial for making more informed investment decisions and adapting to a dynamic economic environment.