Despite shrinking in January, the U.S. trade deficit could still weigh on first quarter economic growth. The nominal deficit in goods and services trade declined to $54.5 billion from an upwardly-revised $72.9 billion in December ($70.3 billion previously). After two monthly declines, exports snapped back 5.5% on broad based gains. Meanwhile, following sizable increases the prior two months, imports fell modestly amid widespread declines apart from continued purchases of computing equipment to feed the AI boom. On a regional basis, the U.S. goods trade deficit declined with Canada, Mexico and the EU, but continued to widen with Vietnam.

While the trade deficit is meaningfully smaller than in late 2024 (that is, before the front-loading of imports in early 2025 ahead of new tariffs), it is trending in an upward direction based on a three-month average. Moreover, adjusted for price changes, the real trade deficit is still modestly wider in January than in Q4. It could widen further in the months ahead if importers again try to beat looming new tariffs to replace the earlier unlawful ones. So, net exports still look to subtract from Q1 real GDP growth for the first time in four quarters.

The U.S. trade balance will benefit from rising energy prices due to the Iran conflict, but real net exports are still likely to weigh on GDP growth this year as resilient domestic demand pulls in imports.

Table 1 - United States — Goods and Services Trade Balance

(US$ billions)

Source: BMO Economics, Haver Analytics

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