The US merchandise-trade deficit widened significantly in July to $118.8 billion, marking the largest shortfall since March 2025. This figure represents a 17.2% increase from the prior month and surpassed all economist estimates in a Bloomberg survey. The data, which is not adjusted for inflation, was released by the Commerce Department and highlighted a multi-decade surge in inbound shipments of capital equipment.
Driving this widening gap was a 3.7% climb in merchandise imports, primarily fueled by the largest increase in capital goods since 1993. This category includes essential items like computers, semiconductors, and telecommunications equipment, largely linked to the artificial intelligence investment boom. Conversely, US exports of goods experienced a 2.9% decline, contributing to the expanding deficit. The trade deficit has been influenced by factors such as the Iran conflict boosting demand for US petroleum products and companies stockpiling goods to mitigate supply-chain disruptions.
Economists note that a deficit driven by capital goods imports, rather than consumer spending, generally indicates productive investment activity. However, this still weighs on headline Gross Domestic Product (GDP) growth figures. For instance, net exports are projected to reduce third-quarter GDP growth by approximately 1 percentage point, following a subtraction of 1.14 percentage points in the second quarter. The advanced estimate for the deficit in July was $118.8 billion, a substantial increase from June's $101.4 billion. Merchandise imports rose by $11.4 billion to $318.2 billion, while exports fell by $6 billion to $199.4 billion.
