US Trade Deficit Widens in December as Imports Rise; Labor Market Holding is strong
The US trade deficit widened sharply in December amid a surge in imports, and the deficit for goods in 2025 was the highest on record despite President Donald Trump’s tariffs on foreign imports.
The second consecutive monthly decline in the trade deficit reported by the Commerce Department on Thursday suggested that trade had little or no impact on gross domestic product in the fourth quarter. But most imports were capital goods, which should support business investment and maintain expectations of strong economic growth.
Trump last year introduced a series of tariffs against trading partners with the aim of, among other things, addressing trade imbalances and protecting US industries. But the punitive jobs did not produce a recovery in productivity, as factory employment fell by 83,000 jobs from January 2025 to January 2026.
“There is no evidence in the economics literature to suggest that tariffs have a significant impact on trade deficits when countries use them,” said Chad Bown, senior fellow at the Peterson Institute for International Economics.
The trade gap widened 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 predict the trade deficit will reach $55.5 billion.
The trade deficit fell by 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 trade deficits were reported with Mexico, Vietnam, Taiwan, Ireland, Thailand and India. The goods trade deficit with China fell to $202.1 billion from $295.5 billion in 2024.
The report was delayed due to the shutdown last year. Imports rose 3.6% to $357.6 billion in December. Imports rose 3.8% to $280.2 billion, boosted by a $7.0 billion increase in industrial goods and materials, mainly non-monetary gold, copper and crude oil. Imports of capital goods rose by $5.6 billion, led by computer accessories and telecommunications equipment. That increase may be related to the creation of data centers to support artificial intelligence.
But purchases of consumer goods declined, and pharmaceutical preparations were dragged down. There has been a large fluctuation in the sales of pharmaceutical preparations due to cost.
Imports rose 4.3% to a record $3.44 trillion by 2025. There were record imports from 46 countries last year, led by Mexico, Taiwan and Vietnam. Some goods from Taiwan and Vietnam are exempt from tariffs. The increase in imports last year almost stopped nationally, led by capital goods, especially computers, computer accessories and telecommunications equipment. Imports of cars, parts and engines have declined.
Exports fell 1.7% to $287.3 billion in December. Exports fell 2.9% to $180.8 billion, weighed down by an $8.7 billion drop in industrial goods and construction materials, mainly non-monetary gold. Exports of other goods decreased.
But exports of bulk goods increased, boosted by semiconductors. There was an increase in exports of consumer goods, including pharmaceutical preparations. Exports rose 5.7% to a record high of $2.20 trillion in 2025, boosted by capital goods, industrial goods and construction materials, other goods and consumer goods.
Stocks on Wall Street were trading lower. The dollar has gained against a basket of currencies. US Treasury yields rose.
The trade deficit has decreased significantly
The goods trade deficit widened 18.8% to $99.3 billion in December. Imports of services increased by $2.0 billion to $77.4 billion amid gains in transportation and tourism. Exports of services rose $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 an annualized 3.0% from 3.6% previously.
“But strong exports should also mean strength in data such as inventories or business investment,” said Veronica Clark, an economist at Citigroup. “Increases in foreign computing in particular should be accompanied by strong business equipment investment and could remain strong due to AI-related demand.”
The BEA will publish its delayed GDP estimate for the fourth quarter on Friday. The economy grew at a pace of 4.4% in the July-September quarter.
Elsewhere in the economy, the labor market appears stable. Initial claims for federal jobless benefits fell by 23,000 to a seasonally adjusted 206,000 in the week ended February 14, the Labor Department said.
That marked a sharp decline as claims jumped to 232,000 at the end of January. Economists had forecast 225,000 claims last week.
Minutes of the Federal Reserve’s January 27-28 policy meeting published on Wednesday showed “most participants felt that labor market conditions were showing signs of recovery.”
However, concerns about the risks to the labor market remain. The minutes also noted some policymakers “point to the possibility that a continued decline in labor demand may cause unemployment rates to rise sharply in low-income areas or that the accumulation of job gains in a few less sensitive sectors may reflect a growing risk to the entire labor market.”
The claims data covers the week the government conducted a survey of employers in the nonfarm payrolls portion of the February employment report. Job growth accelerated in January, although almost all of the employment gains came from the health care and social assistance sectors.
Policymakers and economists say immigration policies have been hindering job growth. Prolonged uncertainty over wages was weighing on hiring and artificial intelligence added another warning, economists said.
The number of people receiving unemployment benefits after the first week of aid, a proxy for employment, rose by 17,000 to a seasonally adjusted 1.869 million during the week ended Feb. 7, the claims report said. These so-called progressive claims are associated with sluggish employment. The average period of unemployment is near a four-year high.
The lack of employment has had a major impact on recent college graduates, who, due to no or limited work history, are unable to apply for unemployment benefits and are not included in the claims data.
“The majority of Americans want to see employment rise, but policymakers are focused on making sure the firing doesn’t continue,” 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)
