- The US goods and services trade deficit grew 13.7% from the prior month to $105.6 billion in August, the widest since early 2025 and above the $102.1 billion economists expected. Imports rose 4.3% while exports gained 1.4%, and on an inflation-adjusted basis the merchandise deficit reached $114.7 billion, the largest since March 2025.
- Before these figures the Atlanta Fed GDPNow forecast indicated net exports would subtract 2.59 percentage points from third quarter GDP, the largest drag since early 2025 ahead of the Liberation Day tariffs.
- Capital goods drove the move. Imports in that category, covering computers, semiconductors and telecommunications equipment, rose $6.2 billion from the previous month, with semiconductor imports alone jumping a record $2.4 billion. Civilian aircraft and telecoms equipment shipments also increased.
- Industrial supplies including oil and petroleum products added $9.1 billion of imports against $6.3 billion of exports. Services exports were little changed, restrained by the lowest spending by travellers to the US since August 2023.
What Happened?
The monthly figures are unadjusted for inflation and have swung widely since early 2025 because of tariffs and more recently war-driven volatility in crude prices. The merchandise deficit with Canada widened to the largest since the start of 2025 as companies on both sides accelerated shipments to beat tariffs after trade talks collapsed in August, with US levies of 50% taking effect on billions of dollars of Canadian goods on August 22 and Canada retaliating. Deficits with Mexico and Vietnam widened to fresh records and the shortfall with Taiwan also grew. Imports and exports of nonmonetary gold, volatile since early last year, picked up again.
Why It Matters?
The 2.59 percentage point subtraction from GDP is the figure to carry, and it reveals something awkward about how AI investment shows up in the national accounts. Bloomberg has estimated that roughly half of the 2% US growth over the past year came from AI-related investment, yet the equipment is largely imported, and imports subtract from GDP. For capital goods bought abroad the investment counts positively while the import counts negatively, so the net contribution in the quarter of arrival is close to nothing. The AI buildout is therefore simultaneously the main driver of American growth and among the largest drags on measured output, which means headline GDP understates the activity and anyone reading the print at face value will misjudge the underlying economy. The record $2.4 billion monthly increase in semiconductor imports quantifies a dependence that is becoming more expensive. Samsung is quoting around $4 per gigabit for HBM4 memory, roughly three times current rates, so the US is importing more chips at rising prices and the deficit widens in both volume and value. That is a structural position no tariff policy addresses, since the capacity does not exist domestically at the required scale. Two details deserve separate notice. The Canadian deficit reflects front-running ahead of tariffs rather than underlying demand, so it should reverse and the current figure overstates the trend. And services exports being held back by the weakest traveller spending since August 2023 is a quiet signal, since inbound tourism is a genuine export and a three-year low in it says something about international sentiment toward visiting the United States.
What Next?
Third quarter GDP will show how much of the 2.59 point drag materialised, and the gap between headline growth and underlying activity is the thing to read carefully rather than the number itself. Watch whether the Canadian deficit narrows in September and October, which would confirm August reflected tariff front-running. Semiconductor import values are the series to follow given rising memory prices, since the deficit will widen on price alone even if volumes flatten. Any resolution of the Canada and US trade dispute, or of the Mexico negotiations reportedly close to agreement, would change the bilateral figures quickly. Traveller spending is worth monitoring as a separate indicator, as a continued decline would weigh on services exports into next year.
Affected Tickers and Coins: TSM, NVDA, GC
Source: Bloomberg
