The United States trade deficit blew out to US$70.3 billion in December, a 32.6% jump in a single month, wrong-footing economists who had pencilled in an improvement.
For the full year, the gap between what America imports and what it exports — the trade deficit, meaning it buys more from the world than it sells — barely shifted, easing just 0.2% to $901.5 billion.
That modest annual change sits awkwardly beside U.S. President Donald Trump’s claim that tariffs had slashed the deficit by 78%.
Tariffs are import taxes paid by domestic companies when goods cross the border.
While they are designed to make foreign products more expensive and local production more attractive, in practice, tariffs often rearrange trade rather than reduce it.
Imports surged 3.6% in December to US$357.6 billion, while goods alone accounted for US$280.2 billion.
The spike was led by industrial supplies - including non-monetary gold, copper and crude oil - and, more tellingly, capital goods.
Capital goods are big-ticket items used to produce other goods and services, like computer servers or telecommunications equipment.
Imports of these rose $5.6 billion in the month, with strong demand for computer accessories and chip-related gear.
That aligns neatly with the build-out of data centres to power artificial intelligence.
However, the goods trade deficit for 2025 still hit a record $1.24 trillion.
The bilateral deficit with China narrowed sharply to $202 billion.
But the gap with Taiwan and Vietnam widened materially.
Exports, meanwhile, fell 1.7% in December; goods exports dropped 2.9%, dragged down by lower shipments of industrial materials.
Nevertheless, there were bright spots – with semiconductor exports rising, and consumer goods such as pharmaceuticals improving — yet not enough to offset the import surge.
Financial markets took the hint.
Equities drifted lower, bond yields edged higher, and the U.S. dollar firmed.
Currency strength makes imports cheaper and exports dearer, hardly a recipe for narrowing trade gaps.
Meanwhile, the broader economic question is growth.
Net exports - exports minus imports- feed directly into gross domestic product (GDP), the broadest measure of economic output.
A wider deficit subtracts from GDP.
The Atlanta Federal Reserve trimmed its fourth-quarter growth estimate to 3.0 % annualised from 3.6 %, which, while respectable, is still heading in the wrong direction.
Admittedly, strong capital-goods imports may foreshadow firmer business investment and inventory accumulation.
In other words, if companies are stockpiling inputs or installing equipment, the short-term drag from imports could translate into higher output later.
Meanwhile, initial jobless claims fell to 206,000 in mid-February, suggesting layoffs remain contained.
However, continuing claims - a proxy for how quickly people find new work - remain elevated.
Hiring is sluggish, and factory employment has fallen by 83,000 over the past year.
Unsurprisingly, tariffs have not sparked a manufacturing revival.
The Federal Reserve’s January minutes noted “stabilisation” in labour conditions but flagged the risk that weak hiring could push unemployment higher in a low-turnover environment.
Meantime, policymakers appear more focused on preventing a spike in layoffs than celebrating job creation.
Strip away the rhetoric, and 2025 looks less like a trade revolution and more like a reshuffling of deck chairs on the Titanic.
The U.S. is still running a vast external deficit, yet simply sourcing more chips and components from different postcodes.
While tariffs promised to close the gap, instead, they have exposed a harder truth: trade balances are shaped less by border taxes and more by domestic demand, investment cycles and the strength of the dollar.
On those fronts, America remains hungry — and the world is happy to sell to it.
