Despite record tariff levels, the US trade deficit is widening in large part because of the boom in AI-related investment

American imports related to the artificial intelligence boom have more than doubled since 2023 while non-AI imports have fallen. This hunger for AI investment has increased the U.S. trade deficit despite the highest tariffs in a century. AI-related exports from the U.S. have also surged, though not as much, according to new (AI-assisted) research from Minneapolis Fed Monetary Advisor Michael Waugh (Minneapolis Fed Staff Report 684, “Trade in AI-Related Products”). … 

The analysis unsurprisingly finds that Taiwan, the world’s dominant producer of advanced semiconductor chips, is a major source of AI-relevant imports. But under Waugh’s broader umbrella of AI-related goods, Mexico is equally important, with Mexico and Taiwan each supplying about a quarter of U.S. imports. Mexico is a major source for electrical, cooling, and networking products. Mexico is also a major destination for America’s AI-related exports. Some of this traffic, Waugh believes, represents supply chains that cross the southern border multiple times. AI-related trade also helps explain why U.S. trade with Mexico remained robust in the face of tariffs while imports from Canada dropped. AI-related imports from mainland China were never large, but have fallen since 2023 and are now below 10 percent, less than Vietnam or Thailand. Waugh notes that Chinese imports—AI-related and otherwise—faced an additional 20 percent tariff (based on allegations of supplying chemicals used to make the drug fentanyl).

Source: Jeff Horwich on Minneapolis Fed

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