US merchandise-trade deficit widens to record ahead of Trump

The U.S. merchandise-trade deficit widened in December to a record as the value of imports increased, highlighting a key issue that President Donald Trump aims to rectify in his second term.

The shortfall in goods expanded 18% to $122.1 billion, Commerce Department data showed Wednesday. The figure, which isn’t adjusted for inflation, exceeded all estimates in a Bloomberg survey of economists.

The figures, along with the report’s inventory data, prompted a nearly full percentage point downgrade in the Federal Reserve Bank of Atlanta’s GDPNow forecast for fourth-quarter gross domestic product. Net exports are seen subtracting 0.61 percentage point, while a similar drag will come from inventories.

The GDPNow growth forecast stands at 2.3% ahead of Thursday’s government release, compared to the 2.7% median estimate in a Bloomberg survey of economists.

Goods imports grew nearly 4% to $289.6 billion, fueled by the biggest percentage increase in inbound shipments of industrial supplies since 1993. Exports decreased 4.5% to $167.5 billion.

U.S. manufacturers remain challenged by weak overseas economies and a strong dollar that risk keeping the trade gap wide this year. An increase in imports could reflect a preference by U.S. companies to secure shipments in advance of potential tariffs from the Trump administration – which may start as soon as Saturday.

Trump is looking to deploy tariffs in order to spur investment in manufacturing and encourage domestic production, which he says will help bring factory jobs home and reduce the trade deficit. That will be tough to tackle as companies for decades have looked to take advantage of lower costs, and often looser regulations, in other countries.

Economists also say the trade deficit is driven largely by macroeconomic causes like high US consumption rates and a strong dollar that makes imports cheap and is fueled by its position as the world’s reserve currency of choice.

The Commerce Department report showed retail inventories slid 0.3% last month, the first drop in a year. Inventories at car dealers fell 1.2%, marking the third straight decline after more than two years of gains. Stockpiles at wholesalers declined 0.5%.

More complete December trade figures that include the balance on the services account are due Feb. 5.