The U.S. trade deficit widened sharply in December amid a surge in imports, and the goods shortfall in 2025 was the highest on record despite President Donald Trump’s tariffs on foreign manufactured merchandise.
The second straight monthly deterioration in the trade deficit reported by the Commerce Department on Thursday suggested that trade made little or no contribution to gross domestic product in the fourth quarter. But most of the imports were capital goods, which should support business investment and keep expectations for strong economic growth intact.
Trump last year unleashed a barrage of tariffs against trading partners with the aim, among other things, to address trade imbalances and protect U.S. industries. But the punitive duties have not yielded a manufacturing renaissance, with factory employment declining by 83,000 jobs from January 2025 through January 2026.
“There just isn’t any evidence out there in the economic research literature to suggest that tariffs have materially impacted trade deficits historically when countries have implemented them,” said Chad Bown, senior fellow at the Peterson Institute for International Economics.
The trade gap ballooned 32.6% to a five-month high of $70.3 billion, the Commerce Department’s Bureau of Economic Analysis and Census Bureau said. Economists polled by Reuters forecast the trade deficit would contract to $55.5 billion.
The trade deficit narrowed 0.2% to $901.5 billion in 2025. The goods trade gap widened 2.1% to an all-time high of $1.24 trillion. Record goods trade deficits were reported with Mexico, Vietnam, Taiwan, Ireland, Thailand and India. The goods trade deficit with China shrank to $202.1 billion from $295.5 billion in 2024.
The report was delayed because of last year’s government shutdown. Imports increased 3.6% to $357.6 billion in December. Goods imports surged 3.8% to $280.2 billion, boosted by a $7.0 billion increase in industrial supplies and materials, mostly non-monetary gold, copper and crude oil. Capital goods imports increased $5.6 billion, lifted by computer accessories and telecommunications equipment. That rise is likely related to the construction of data centers to support artificial intelligence.
But consumer goods imports fell, pulled down by pharmaceutical preparations. There have been large swings in imports of pharmaceutical preparations because of tariffs.
Goods imports increased 4.3% to a record $3.44 trillion in 2025. There were record imports from 46 countries last year, led by Mexico, Taiwan and Vietnam. Some goods from Taiwan and Vietnam have been exempted from tariffs. The rise in imports last year was almost across the board, led by capital goods, mostly computers, computer accessories and telecommunications equipment. Imports of motor vehicles, parts and engines fell.
Exports fell 1.7% to $287.3 billion in December. Goods exports dropped 2.9% to $180.8 billion, weighed down by an $8.7 billion decline in industrial supplies and materials, mostly non-monetary gold. Exports of other goods fell.
But capital goods exports increased, boosted by semiconductors. There were increases in exports of consumer goods, including pharmaceutical preparations. Exports of goods increased 5.7% to an all-time high of $2.20 trillion in 2025, boosted by capital goods, industrial supplies and materials, other goods as well as consumer goods.
Stocks on Wall Street were trading lower. The dollar gained versus a basket of currencies. U.S. Treasury yields rose.
Goods trade deficit deteriorated
The goods trade deficit widened 18.8% to $99.3 billion in December. Imports of services increased $2.0 billion to $77.4 billion amid gains in transport and travel services. Exports of services increased $0.5 billion to $106.5 billion.
The larger-than-expected trade deficit prompted the Atlanta Federal Reserve to cut its fourth-quarter GDP growth estimate to a 3.0% annualized rate from a 3.6% pace earlier.
“But strong imports should also imply strength in details like inventories or business investment,” said Veronica Clark, an economist at Citigroup. “Surging computer imports in particular should correspond with stronger business equipment investment and could remain strong due to AI-related demand.”
The BEA will publish its delayed advance fourth-quarter GDP estimate on Friday. The economy grew at a 4.4% pace in the July-September quarter.
Elsewhere in the economy, the labor market appeared to remain stable. Initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 206,000 for the week ended February 14, the Labor Department said.
That marked a significant decline since claims jumped to 232,000 at the end of January. Economists had forecast 225,000 claims for the latest week.
Minutes of the Federal Reserve’s January 27-28 policy meeting published on Wednesday showed the “vast majority of participants judged that labor market conditions had been showing some signs of stabilization.”
Still, concerns over downside risks to the labor market remained. The minutes also noted some policymakers “pointed to the possibility that a further fall in labor demand could push the unemployment rate sharply higher in a low-hiring environment or that the concentration of job gains in a few less cyclically sensitive sectors was potentially signaling heightened vulnerability in the overall labor market.”
The claims data covered the week during which the government surveyed employers for the nonfarm payrolls portion of February’s employment report. Job growth accelerated in January, though nearly all the employment gains came from the healthcare and social assistance sector.
Policymakers and economists say immigration policies were constraining job growth. Lingering uncertainty from tariffs was constraining hiring while artificial intelligence added another layer of caution, economists said.
The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased 17,000 to a seasonally adjusted 1.869 million during the week ended February 7, the claims report showed. The so-called continuing claims are consistent with sluggish hiring. The median duration of unemployment is near four-year highs.
The lack of hiring has significantly impacted recent college graduates, who because of no or limited work history, cannot file for unemployment benefits and are not captured in the claims data.
“Most Americans want to see hiring pick up, but policymakers are focused on ensuring firing doesn’t pick up,” said Heather Long, chief economist at Navy Federal Credit Union.
(Reporting by Lucia Mutikani; Additional reporting by David Lawder; Editing by Paul Simao and Andrea Ricci)
