The US trade deficit widened sharply in December amid a surge in imports, and the goods shortfall in 2025 was the highest on record despite US President Donald Trump's tariffs on foreign manufactured merchandise.
The second straight monthly deterioration in the trade deficit reported by the US Commerce Department 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.
President Trump last year unleashed a barrage of tariffs against trading partners with the aim, among other things, to address trade imbalances and protect US 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.
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.
Goods trade deficit deteriorated
The goods trade deficit widened 18.8% to $99.3 billion. Imports of services increased $2 billion to $77.4 billion in December amid gains in transport and travel services. Exports of services increased $500m to $106.5 billion.
The BEA is scheduled to publish its delayed advance fourth-quarter GDP estimate tomorrow. The economy likely grew at a 3% annualised rate last quarter after expanding at a 4.4% pace in the July-September quarter, a Reuters survey of economists showed.
A separate report from the US Labor Department suggested labour market conditions remained stable in February. Initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 206,000 for the week ended 14 February. Economists had forecast 225,000 claims for the latest week.
Last week's drop marked a significant decline in claims since they jumped to 232,000 at the end of January. Minutes of the Federal Reserve's January 27-28 policy meeting published yesterday 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 labour 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 non-farm 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 import tariffs remained a drag on hiring while artificial intelligence was also adding 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 suggested that laid-off workers were experiencing difficulties finding new positions.
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.
