According to reports, the United States' trade deficit unexpectedly narrowed significantly in October, reaching its lowest level since 2009. The main reason is a sharp decline in imports, particularly in the pharmaceutical category.

Data released by the U.S. Department of Commerce on Thursday showed that the trade deficit in goods and services contracted sharply by 39% month-on-month in October, dropping to $29.4 billion. This figure fell below the expectations of all economists in market surveys. The report was delayed by over a month due to the previous federal government shutdown.

Total imports in October fell by 3.2%, reflecting declines in imports of pharmaceuticals and non-monetary gold. Among these, the import value of pharmaceutical preparations dropped to its lowest point since July 2022. At the same time, the total exports of U.S. goods and services grew by 2.6%. The data above are not adjusted for inflation.

Behind the sharp decline in imports, there is a clear "tariff avoidance" effect. In September, many companies stockpiled goods in advance in anticipation of a 100% tariff on imported pharmaceuticals that President Trump was set to impose starting October 1, even though the tariff was ultimately postponed. Many businesses circumvented this tariff by reaching agreements with the government to lower drug prices.

This year, due to the implementation of U.S. tariff policies, trade data has experienced significant monthly fluctuations. In recent months, in particular, trade volumes of non-monetary gold and pharmaceutical preparations surged and then sharply declined in response to Trump’s wavering tariff statements.

Apart from gold, imports of other industrial supplies and materials such as oil and metals also declined. However, imports of computers and accessories increased. Bradley Saunders, an economist for North America at Capital Economics, noted in a report that this "indicates strong signs in other areas of the economy amid the artificial intelligence construction boom."

Separate government data showed that U.S. labor productivity growth accelerated to its fastest pace in two years in the third quarter. This momentum is expected to strengthen further as businesses increase investments in artificial intelligence.

The significant volatility in trade has also affected the government’s measurement of economic activity—Gross Domestic Product (GDP). Following the release of the latest trade report, the Atlanta Fed’s GDPNow model predicts that net exports will contribute nearly 2 percentage points to economic growth in the fourth quarter. The current estimate for GDP growth in that quarter has been revised upward to 5.4%.

It should be noted that gold trade is not included in the government’s GDP calculations unless it is used for industrial purposes such as jewelry manufacturing. After adjusting for inflation (which affects the measurement of real GDP), the goods trade deficit narrowed to $63 billion in October, the smallest since February 2020.

Economist Troy Dury commented, "Volatile components added noise to the October report, especially in the overall trade balance data. Stripping out the noise, the report shows that trade likely boosted U.S. economic growth at the start of the fourth quarter, despite the government shutdown."

From a regional trade perspective, the U.S. goods trade deficit with Ireland narrowed sharply. Attracted by Ireland’s favorable tax environment, several major U.S. pharmaceutical companies, including Eli Lilly and Pfizer, have outsourced much of their production to the country.

Meanwhile, the U.S. trade deficit with Mexico and China widened, while the deficit with Canada narrowed. The deficit with the Taiwan region of China also expanded, which may reflect an increase in imports of computers and accessories.

Data released by Statistics Canada on Thursday showed that Canada’s merchandise trade balance shifted back into a deficit as a surge in computer and electronics imports outpaced a sharp increase in gold exports to non-U.S. countries. The report also showed that Canada’s share of exports to the United States fell to 67.3%. Excluding the pandemic period, this is the lowest level since data became available in 1997.