US Trade Deficit Soars to Historical High, Slashing GDP Growth Outlook

Container ships at the Port of Los Angeles in San Pedro, Calif. App Gomes/AFP via Getty Images

A surge in year-end imports pushed the U.S. goods trade deficit to a record high in December 2024, slashing fourth-quarter economic growth estimates by nearly a full percentage point as the yawning trade gap and shrinking inventories weighed on economic expansion.

The U.S. Census Bureau reported on Jan. 29 that America’s goods trade deficit widened by $18.6 billion, or 18 percent, to an unprecedented $122.1 billion in December. The sharp increase was driven by a $10.8 billion surge in imports, coupled with a $7.8 billion drop in exports.

The report also showed that wholesalers and retailers reduced their inventory levels in December. Typically, when imports increase, the negative effect on gross domestic product (GDP) calculations is softened by businesses stockpiling goods, which adds to economic growth. However, because inventories shrank instead of growing in December, this buffer was missing, exacerbating the trade deficit’s impact on GDP calculations.

In response to the latest trade data, the Federal Reserve Bank of Atlanta cut its fourth-quarter GDP growth estimate to an annualized 2.3 percent, down from a previous projection of 3.2 percent. If this projection holds when the Bureau of Economic Analysis (BEA) finalizes its fourth-quarter GDP report on Jan. 30, it would reflect a significant slowdown from the 3.1 percent growth rate recorded in the third quarter.

Economists suggest the sharp rise in imports may have been fueled by businesses front-loading purchases of industrial supplies and consumer goods ahead of potential tariffs under the Trump administration.

“It seems reasonable to think that a substantial share is due to attempts to import raw materials before prices potentially jump after the imposition of new tariffs,” Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, told Reuters.

“Those preemptive purchases probably continued into January,” Allen continued. “A similar wave of preemptive buying is likely putting upward pressure on underlying imports too.”

President Donald Trump, a long-time critic of U.S. trade deficits, has vowed to impose tariffs on goods imported from other countries, a move that could discourage imports and force shifts in global supply chains. He has not only encouraged U.S. companies to re-shore their operations but also invited global businesses to manufacture their products in the United States.

“My message to every business in the world is very simple: Come make your product in America, and we will give you among the lowest taxes of any nation on Earth,” Trump said in a recent video appearance at the World Economic Forum in Davos, Switzerland. “But if you don’t make your product in America, which is your prerogative, then, very simply, you will have to pay a tariff.”

Trump has proposed cutting the U.S. corporate tax rate from 21 percent to 15 percent, a move requiring backing by the Republican-controlled Congress, which is currently debating extensions and modifications to his 2017 tax cuts.