By Lucia Mutikani

WASHINGTON, Oct 6 (Reuters) – The US trade deficit widened more than expected in August as imports jumped to a record high against the backdrop of robust domestic demand, keeping trade on track to again subtract from economic growth in the third quarter.

The deterioration reported by the Commerce Department on Tuesday was despite President Donald Trump’s aggressive tariffs on imports, which he has argued are meant to shrink the trade gap. The nation posted record goods trade deficits with at least three countries, including Mexico.

Economists have long argued that the US did not have the capacity to produce enough goods to meet its consumption needs. Some lowered their gross domestic product growth estimates for the July-September quarter.

“The administration’s trade policies have largely been a failure, trade tariffs have done nothing to reduce America’s reliance on the import of foreign-produced goods,” said Christopher Rupkey, chief economist at FWDBONDS. “The cost of American labor is simply too high to produce goods here cheap enough for consumers to even think about purchasing. Even if US manufacturers were willing, the factories could not be built here fast enough to produce the goods that consumers depend on.”

The trade shortfall increased 13.7% to $105.6 billion, the largest since March 2025, the Commerce Department’s Bureau of Economic Analysis and Census Bureau said. Economists polled by Reuters had forecast the deficit would be $102.0 billion.

The trade deficit was at $79.8 billion when Trump was elected for a second term in November 2024. August’s deterioration was flagged by data last week that showed an import-driven surge in the goods trade deficit, and part of the increase reflected higher prices.

Domestic demand increased at its fastest pace in more than 3-1/2 years in the second quarter, reflecting robust consumer spending and business spending on equipment, mostly related to AI. The trend appears to have spilled over into the third quarter, with data last month showing strong consumer spending in August as well as orders and shipments of nondefense capital goods, excluding aircraft.

But businesses are relying on imports to meet demand. Imports increased 4.3% to an all-time high of $420.8 billion in August. Goods imports jumped 5.3% to $342.2 billion, partly due to businesses replenishing inventories, which have been drawn down for five straight quarters.

They were boosted by a $9.1 billion increase in industrial supplies and materials, which include petroleum. Crude oil imports rose $3.3 billion while nonmonetary gold increased $3.1 billion. Nonmonetary gold imports and exports are excluded in the calculation of GDP.

Capital goods imports soared $6.2 billion to a record high $146.4 billion, driven by semiconductors and other industrial machinery, reflecting the AI infrastructure buildout. Though imports of computer accessories decreased $1.6 billion, they totaled $158.5 billion in the first eight months of the year compared to $89.5 billion during the same period in 2025.

TRADE SET TO WEIGH ON GDP GROWTH

Exports rose 1.4% to $315.2 billion. Goods exports increased 2.2% to $205.7 billion, reflecting a $6.3 billion rise in industrial supplies and materials, mostly nonmonetary gold, crude oil and fuel oil.

Economists at Goldman Sachs said the rise in oil exports appeared to have been driven largely by drawdowns in both commercial inventories and the Strategic Petroleum Reserve rather than an increase in domestic production.

Capital goods exports rose $1.3 billion, lifted by semiconductors and computers. But exports of civilian aircraft fell $1.0 billion. Consumer goods exports dropped $2.2 billion, pulled down by a $2.4 billion decline in pharmaceutical preparations.

The goods trade deficit increased 10.3% to $136.6 billion in August. When adjusted for inflation, it widened $8.7 billion, or 8.2%, to $114.7 billion. Trade has subtracted from GDP for three straight quarters, and economists estimate it could cut as much as 2.5 percentage points from GDP in the third quarter.

Goldman Sachs economists trimmed their third-quarter GDP growth estimate to a 3.1% annualized rate from a 3.4% pace. The economy grew at a 2.2% pace in the second quarter.

In addition to being a drag on GDP growth, the trade deficit also has inflation implications as it underscores excess demand. Economists said it supported their expectations that the Federal Reserve would raise interest rates again this year.

“The Fed had better pay good attention to all this excess demand stuff,” said Carl Weinberg, chief economist at High Frequency Economics. “Underlying the price shock from elevated energy prices, there is a demand-driven inflation challenge in the US economy. Energy prices are just an overlay onto that.”

The US central bank last month raised its benchmark overnight interest rate by 25 basis points to the 3.75%-4.00% range, its first hike in three years, and flagged further increases in borrowing costs ahead.

Services imports rose less than $0.1 billion to $78.5 billion in August, amid a small gain in transport. Charges for the use of intellectual property fell as did travel.

Exports of services also advanced by less than $0.1 billion to $109.5 billion. There were modest increases in charges for the use of intellectual property and other business services. Travel and financial services both declined.

The nation had record goods trade shortfalls with Mexico, Vietnam and Malaysia. It maintained deficits with Taiwan, China, the European Union, South Korea and India among other trade partners. The shortfall with Canada jumped $4.1 billion, with strong growth in imports likely reflecting businesses front-loading orders to avoid higher tariffs. The US and Canada are locked in a trade war.

The US, however, posted a record goods trade surplus with Belgium, while maintaining surpluses with the Netherlands, South and Central America, the United Kingdom, Hong Kong, Brazil, Australia and Saudi Arabia.

“Trade with Canada may remain volatile for a few months due to large swings in energy goods and as new tariffs come into effect amidst rising trade uncertainty,” said Veronica Clark, an economist with Citigroup.

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(Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea Ricci)