US trade gap in July hits biggest in over a year on AI buildout

The U.S. trade deficit widened in July to its largest level in over a year, driven by a surge in imports alongside the rapid expansion of artificial intelligence (AI) technology. According to government data released Thursday, U.S. imports increased by 2.8% to reach $399.3 billion, while exports dropped 2.1% to $310.7 billion. This resulted in a trade deficit of $88.6 billion, marking a 24.4% rise from the previous month.

The decline in exports of crude oil and gold was offset by a significant increase in imports of tech products, particularly computers, computer accessories, and semiconductors.

The trade deficit expanded not only with key manufacturing nations like Taiwan but also with traditional allies and competitors such as Mexico, Thailand, South Korea, and Malaysia. These gaps reached record highs for the month. While previous administrations imposed tariffs on various allies and competitors to narrow the trade gap, the current administration has been more cautious in targeting products like chips, smartphones, and other electronics.

Commerce Secretary Howard Lutnick hinted at the possibility of new tariffs on semiconductors, emphasizing a targeted and thoughtful approach to tariffs.

The U.S. recently implemented fresh duties targeting 60 trading partners following the Supreme Court's ruling against many of President Trump's earlier global tariffs in February. These new tariffs join a separate trade investigation against 16 partners, including China, the European Union, and Taiwan, which could potentially trigger further tariff hikes.

Additionally, the U.S. is embroiled in a trade dispute with Canada, with President Trump imposing a 50% duty on billions of dollars in Canadian goods, prompting retaliation from Ottawa. The broader context of trade flows is further complicated by geopolitical tensions, such as the ongoing war in the Middle East, which has prompted Iran to block the Strait of Hormuz, a critical waterway for global energy and fertiliser transit.

This has increased demand for U.S. energy products but has also disrupted supply chains for American firms.