US trade gap in July hits biggest in over a year on AI build-out

The US trade deficit in July expanded to its highest level since March 2025, according to government figures released on September 3. The increase was attributed to a surge in imports driven by the rapid development of the AI technology sector. The trade deficit reached $88.6 billion (S$112 billion), a 24.4% rise from the previous month.

This growth occurred despite exports of crude oil and gold declining, while imports of tech products surged. Exports fell by 2.1% to $310.7 billion, while imports increased by 2.8% to $399.3 billion, primarily due to the surge in computers, computer accessories, and semiconductors. The US trade gap with Taiwan, a key chip manufacturer, hit a record $20.7 billion for the month.

Trade deficits with Mexico, Thailand, South Korea, and Malaysia also reached their highest on record. President Donald Trump's 2025 return to the White House and the implementation of new tariffs on allies and competitors contributed to the widening trade gap. While Trump's tariffs have impacted economies comprising most of US trade, American officials have taken care to exempt items such as chips, smartphones, and other electronics.

Commerce Secretary Howard Lutnick hinted at the potential for new tariffs on semiconductors, stating that the US aims to develop a targeted and thoughtful tariff policy. In July, the US Supreme Court overturned many of Trump's global tariffs, but new duties targeting 60 trading partners replaced them. An ongoing trade investigation against 16 partners, including China, the European Union, and Taiwan, may result in further tariffs.

Meanwhile, the US is involved in a trade war with neighboring Canada, with the trade deficit narrowing in July. In August, Trump imposed a 50% duty on billions of dollars worth of Canadian goods, prompting Canada to retaliate. The Middle East war has also affected trade flows, with Iran blocking the Strait of Hormuz, a crucial waterway for global energy and fertilizer transport, leading to increased demand for US energy products. However, US firms have faced challenges in supply chains.