The U.S. goods trade deficit jumped 17% in July to its widest level since March 2025 as imports rose sharply, fueled by capital goods tied to artificial intelligence infrastructure, while exports declined for a third consecutive month.
By yourNEWS Media Newsroom.
The U.S. merchandise trade deficit widened sharply in July as imports climbed and exports continued retreating from the record high reached earlier this year, according to new Census Bureau data released Aug. 27.
The seasonally adjusted goods trade gap increased by more than $17 billion, or 17%, to $118.8 billion.
Economists had expected a substantially smaller deficit of approximately $99 billion.
July’s reading was the largest since March 2025, when businesses accelerated imports ahead of expected U.S. tariffs.
The latest figures show that the trade balance remains volatile despite President Donald Trump’s expansive tariff policies, with strong domestic investment demand continuing to pull foreign goods into the United States.
Imports rose nearly 4% in July to approximately $318 billion and were about 14% higher than a year earlier.
Capital goods accounted for most of the increase.
Imports in that category surged 11%, marking their largest increase since 1993.
The sharp rise reflects continued investment in artificial intelligence infrastructure, including data centers and other technology projects that depend heavily on imported equipment.
Brad Setser, a senior fellow at the Council on Foreign Relations, said the combination of elevated federal deficits and investment in import-intensive industries helps explain why the trade gap remains large despite higher tariffs.
“Standard macroeconomics is winning out over the Trump tariffs—a big budget deficit plus a surge in investment in an import heavy sector would normally result in a big trade deficit,” Setser wrote in an X post.
He also noted that important technology products tied to the AI expansion have largely avoided the new tariff regime.
“But also worth noting that the key inputs for the AI/data center buildup have essentially been excluded from the tariffs—there aren’t tariffs on imported chips or imported computers.”
Other import categories were more subdued.
Inbound consumer goods increased 0.1%.
Industrial supplies declined 3.9%, while imports of automotive vehicles fell 1.6%.
Foods, feeds and beverages dropped by nearly 1%.
Exports moved in the opposite direction.
U.S. merchandise exports declined for a third consecutive month after reaching an all-time high in April.
Outbound shipments fell nearly 3% in July to $199.4 billion.
Industrial-supply exports dropped 11.2%, while shipments of foods, feeds and beverages decreased 1.4%.
Automotive exports fell 0.7%.
The combination of rising imports and falling exports produced the unexpectedly large widening in the monthly goods deficit.
Trade figures have been particularly volatile in 2026 as businesses and governments respond to changing tariff schedules, the war with Iran and shifts in the value of the U.S. dollar.
Companies have also adjusted shipping schedules to account for tariff deadlines and uncertainty surrounding future trade policy.
Despite the Trump administration’s efforts to reduce America’s reliance on imported goods, the overall trade deficit has shown limited improvement this year.
The July data indicate that one of the fastest-growing areas of U.S. investment — artificial intelligence infrastructure — is itself contributing to greater import demand.
That dynamic comes as Washington is also engaged in an escalating trade conflict with Canada.
Negotiations between the two countries broke down after Ottawa abandoned talks over the weekend, leading both governments toward additional tariffs.
Canadian Prime Minister Mark Carney announced plans to impose retaliatory duties on various U.S. products after the White House increased tariffs on approximately $28 billion worth of Canadian goods.
Carney has described U.S. trade demands as unfair and cited disagreements involving French-language requirements.
U.S. Trade Representative Jamieson Greer disputed Canada’s characterization of the issue.
Greer said Washington’s objections centered on rules affecting American streaming companies rather than French-language labeling requirements.
“There have been in the past discriminatory laws that target U.S. streaming companies that say you have to give five per cent of your earnings to fund your competitors,” Greer said during an Aug. 26 interview with CBC.
“So, this is not something where we push hard, or condition, or red-line. It’s like the farthest thing from a red line. We were really focused on those taxes.”
Greer also said there are currently “no open channels” between him and Canadian Trade Minister Dominic LeBlanc.
Trump has argued that Canada depends far more heavily on the United States than the United States depends on Canada.
“They feel entitled, and yet, we don’t need Canada, they need us!” Trump wrote in an Aug. 24 Truth Social post. “They do 95 percent of their business with the U.S., with us, the exact opposite!”
Nearly three-quarters of Canada’s merchandise exports go to the United States, making the American market by far its most important foreign destination.
Economists and policy groups in Canada have warned that retaliatory tariffs could raise costs for Canadian households and businesses rather than inflict significant damage on the U.S. economy.
Renaud Brossard, vice president of communications at the Montreal Economic Institute, said Ottawa should focus on improving domestic competitiveness instead of imposing additional tariffs.
“Avoiding signing a bad trade deal is one thing, but deciding to raise taxes on Canadians is quite another,” Brossard said in a statement to The Epoch Times.
“The Carney government’s response to U.S. tariffs should focus on building a stronger Canadian economy; unfortunately, retaliatory tariffs will have the exact opposite effect.”
The Montreal Economic Institute noted that Canada’s cost of living has climbed by more than 24% since 2020.
U.S. inflation has also been substantial over the same period, with the Federal Reserve Bank of St. Louis placing the cumulative increase at approximately 27%.
The latest trade data underscore the tension between tariffs designed to discourage imports and broader economic forces pushing demand in the opposite direction.
AI-related capital spending, a strong need for foreign technology products and declining exports all contributed to July’s $118.8 billion deficit.
With U.S.-Canada trade tensions escalating and global economic conditions remaining unsettled, merchandise trade figures are likely to remain volatile in the months ahead.
For now, the July report shows that the United States imported substantially more goods than economists expected while exports continued sliding from their April peak, pushing the goods deficit to its widest level in 16 months.
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