By Lucia Mutikani
WASHINGTON, July 7 (Reuters) - The U.S. trade deficit widened sharply in May as an artificial intelligence investment boom helped to drive imports of capital goods to a record high, suggesting that trade remained a drag on gross domestic product in the second quarter.
Efforts by businesses to avoid shortages and higher prices related to the conflict in the Middle East also contributed to the large trade shortfall, with the report from the Commerce Department on Tuesday showing overall
imports rising to a 14-month high. The U.S.-Israel war with Iran is also boosting oil exports, with shipments of petroleum hitting a record high.
"Imports convey solid U.S. domestic demand, though inventory frontloading likely lent a hand," said Oren Klachkin, financial markets economist at Nationwide. "AI investment appears to remain on a very solid track."
The trade gap jumped 42.2% to $77.6 billion, the highest level since March 2025, the Commerce Department's Bureau of Economic Analysis and Census Bureau said. Economists polled by Reuters had forecast the deficit at $78.5 billion.
Imports increased 3.3% to $395.3 billion. It was the highest level since March 2025, when frontloading ahead of the imposition of steep tariffs by U.S. President Donald Trump caused imports to soar. Goods imports surged 4.0% to $317.0 billion. Capital goods imports soared $1.1 billion to a record high $128.0 billion, lifted by large increases in imports of computer accessories and semiconductors. Imports of computers, however, dropped $3.4 billion.
Businesses are spending heavily on AI, whose buildup is heavily reliant on imports. There were also increases in imports of civilian aircraft and parts as well as generators, accessories and industrial engines.
Consumer goods imports rose $3.5 billion amid increases in pharmaceutical preparations, cellphones and other household goods. Imports of industrial supplies and materials, which include petroleum, increased $3.1 billion, with crude oil imports rising $1.5 billion.
Imports of motor vehicles, parts and engines increased $2.2 billion, mostly reflecting passenger cars. Imports of other goods rose $1.4 billion to a record $15.3 billion.
EXPORTS DECREASE ACROSS THE BOARD
Exports dropped 3.2% to $317.7 billion amid a strong dollar, which is making U.S.-made goods more expensive on the international market. Goods exports tumbled 5.1% to $210.6 billion, pulled down by a $3.5 billion decline in capital goods amid a decrease in shipments of computers and computer accessories.
Consumer goods exports dropped $2.1 billion as shipments of pharmaceutical preparations fell. Exports of industrial supplies and materials decreased $5.5 billion, largely due to declines in nonmonetary gold, which is excluded in the calculation of gross domestic product. Shipments of other precious metals also fell.
Natural gas exports fell $1.1 billion. But crude oil shipments increased $2.0 billion, with petroleum exports rising to a record high $38.4 billion. The U.S. is a net oil exporter.
The goods trade deficit widened 28.4% to $106.5 billion, also the highest level since March 2025. When adjusted for inflation, the goods trade shortfall rose 18.7%.
Trade has subtracted from GDP for two straight quarters. The Atlanta Federal Reserve's model is currently forecasting GDP increasing at a 1.2% annualized rate in the second quarter. The economy grew at a 2.1% pace in the January-March quarter.
"From a GDP accounting perspective for the second quarter, the wider trade gap looks likely to 'subtract' about 1.7 percentage points from second-quarter real GDP growth," said John Ryding, chief economic advisor at Brean Capital.
The nation continued to run goods trade deficits with a range of countries, including Vietnam, Mexico, China, Canada, Germany, South Korea, India and Ireland, despite Trump's tariffs. But goods trade surpluses were posted with a number of countries, among them the Netherlands, Hong Kong, Australia, the United Kingdom and Brazil.
A small surplus was also recorded on the services balance, which rose to $28.9 billion from $28.3 billion in April.
Exports of services increased $0.8 billion to a record high $107.1 billion, with travel rising $0.4 billion. There were small increases in exports of other business services, transport and financial services. They helped to more than offset a $0.2 billion rise in service imports to an all-time high of $78.2 billion, mostly due to insurance services.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
