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The U.S. trade deficit ballooned to a three-year high as imports surged in December. The trade deficit in goods and services widened to a seasonally adjusted $98.4 billion in December from a revised $78.9 billion in November — a 24.7% monthly increase. The trade deficit is a measure of the difference between what the United States buys from foreign nations and what it sells to them. For 2024, the deficit grew 17%. The dollar’s strength will likely continue to support import growth this year, while softening economic activity in advanced economies alongside the strong dollar will weigh on demand for U.S. goods abroad.
There’s a risk that the trade deficit will widen further if companies accelerate imports to avoid tariffs that the Trump administration has begun to roll out. Washington threatened to impose 25% tariffs on imports from Canada and Mexico (10% on Canadian gas and oil), and additional 10% tariffs on Chinese imports starting February 4. All told, these tariffs would cover 43% of U.S. goods imports. However, the new tariffs on Canadian and Mexican goods are on hold, pending further discussion with the two nations.
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Trump’s additional tariffs against China are already in effect. While there might be some reductions and exclusions, these new tariffs on Chinese goods will largely remain in place. Trump has made his several priorities clear. He wants China to buy more from the United States and stop using unfair practices, such as subsidies for exporters, to gain an advantage over U.S. firms. These tariffs are ultimately designed to return manufacturing from overseas, while also providing new revenue to help offset the cost of extending and probably expanding Trump’s 2017 tax cuts. Among countries and regions, the U.S. goods deficit with China stood at $295.4 billion in 2024, while the goods deficit with the European Union was $235.6 billion, and the gap with Mexico was $171.8 billion. President Trump has long criticized America’s overall trade deficit as a sign of economic weakness, so tariffs will be a main focus of his administration.
The decline in exports in December was broad-based. Total exports fell 2.6% from the previous month. Consumer and auto exports saw the largest drops. Exports contended with a weaker global backdrop and a stronger dollar last year, which makes U.S. goods relatively more expensive abroad. That said, exports did manage to increase 3.9% in 2024 from the previous year, thanks to record sales of U.S. services. With China’s economy yet to meaningfully stabilize from its slowdown, growth across the eurozone showing signs of fragility, and the Federal Reserve moving more slowly than some international banks to lower interest rates, export growth is likely to weaken over the next few months.
Solid domestic demand is contributing to strength in imports. Total imports rose 3.5% in December from the previous month. Most of the gain was tied to a 19% increase in industrial supplies. For 2024, imports rose 6.6%, with food and beverages, capital goods, and auto and auto parts all hitting fresh records. Imports have outpaced exports on average during the past seven months, which kept the trade deficit on a widening trajectory throughout 2024.
Source: Department of Commerce, Trade Data
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