The U.S. trade deficit narrowed sharply in October to its lowest level since 2009, a milestone driven not by a surge in domestic demand but by a notable contraction in imports. While a smaller trade gap typically supports economic growth, the composition of this shift is raising questions about whether it reflects improving external balances or early signs of cooling momentum in the world’s largest economy.

Imports Retreat as Tariffs and Demand Bite

Imports fell 3.2% in October to $331.4 billion, well below market expectations that the deficit would widen. Goods imports dropped an even steeper 4.5% to $255.0 billion, the lowest level since mid-2023. The pullback was broad-based, with industrial supplies leading the decline. Imports in that category fell $2.7 billion, reaching their weakest level since early 2021.

Part of the decline reflects reduced inflows of nonmonetary gold, which dropped $1.4 billion. While gold is excluded from GDP calculations, its volatility often distorts trade data. More structurally, however, economists see the impact of President Donald Trump’s sweeping tariffs beginning to show through. Higher trade barriers appear to be dampening inbound flows while also signaling softer domestic demand as businesses and consumers adjust purchasing behavior.

Exports Hit Records, but Composition Matters

Exports offered a counterbalance, rising 2.6% to a record $302.0 billion. Goods exports climbed 3.8% to an all-time high of $195.9 billion, supported again by nonmonetary gold and other precious metals. This strength helped compress the goods trade deficit by 24.5% to $59.1 billion, the narrowest gap since 2016.

Yet beneath the headline strength, cracks remain. Exports of consumer goods, particularly pharmaceutical products, declined, as did shipments in several other categories. This divergence suggests that while commodity-linked exports are benefitting from price dynamics and safe-haven flows, demand for higher-value manufactured and consumer products remains uneven.

Services Trade and GDP Implications

Both exports and imports of services reached record highs in October, underscoring the growing importance of services in the U.S. external balance. This sector has been a stabilizing force, offsetting volatility in goods trade and reflecting the U.S. economy’s comparative advantage in areas such as finance, technology, and professional services.

Trade has already contributed positively to economic growth in the second and third quarters of 2025, cushioning the economy amid policy uncertainty. The Atlanta Federal Reserve is currently forecasting GDP growth of 2.7% on an annualized basis in the fourth quarter, following a robust 4.3% expansion in the July–September period. A narrower trade deficit could continue to provide marginal support, though the quality of that contribution will matter more than the headline figure.

Reading the Signal Ahead

The October data were delayed by a prolonged government shutdown, adding an element of noise to interpretation. Still, the message is clear: the trade balance is shifting rapidly under the combined influence of tariffs, global demand patterns, and domestic consumption trends. For policymakers and investors, the key question is whether import weakness reflects strategic rebalancing or a broader slowdown that could weigh on growth into 2026.