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

The United States trade deficit widened in July to its largest in over a year, driven by a surge in imports due to the booming artificial intelligence technology build-out, according to government data released on September 3. The trade gap expanded to $88.6 billion, a 24.4% increase from the previous month. Exports declined by 2.1% to $310.7 billion, as crude oil and gold exports fell, while imports of tech products, including computers, computer accessories, and semiconductors, surged.

The deficit with Taiwan, a key chip manufacturer, reached a record $20.7 billion for the month. Trade gaps with Mexico, Thailand, South Korea, and Malaysia also hit their highest on record. Despite President Donald Trump's efforts to narrow the trade gap through tariffs in 2023, the deficit continued to expand. However, American officials have been cautious not to target tech products like chips and smartphones.

The US is currently exploring new tariffs on semiconductors, according to Commerce Secretary Howard Lutnick, who emphasized a targeted and thoughtful tariff policy. The US Supreme Court struck down many of Trump's global tariffs in February, but new duties targeting 60 trading partners were implemented in July. A separate trade investigation involving 16 partners, including China, the European Union, and Taiwan, could result in additional tariffs.

Simultaneously, the US is engaged in a trade war with Canada, where a 50% duty on Canadian goods was imposed, leading to a planned retaliation from Ottawa. Additionally, the Middle East war has disrupted global supply chains, affecting energy and fertiliser exports and increasing demand for US energy products.