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Companies frontloaded imports of drugs in September. (Kanishka Sonthalia/Bloomberg)

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The U.S. trade deficit unexpectedly narrowed in October to the smallest since 2009 on a sharp pullback in imports, notably pharmaceuticals.

The goods and services trade gap shrank 39% from the prior month to $29.4 billion, Commerce Department data showed Jan. 8. The deficit was smaller than all estimates in a Bloomberg survey of economists. The report was delayed for over a month because of the federal government shutdown.

Imports decreased 3.2%, reflecting declines in inbound shipments of medication and nonmonetary gold. Imports of pharmaceutical preparations dropped to the lowest since July 2022. The value of all U.S. goods and services exports rose 2.6% in October. The figures aren’t adjusted for inflation.

Companies frontloaded imports of drugs in September, likely in anticipation of President Donald Trump announcing what would be a 100%��tariff��on pharmaceutical imports to start Oct. 1, which ended up being delayed. Many companies were able to avoid the duty by striking deals with the administration in exchange for promises to lower drug prices.

October trade deficit narrowed to $29.4B vs. $58.7B est. & $48.1B in prior month, lowest since 2009… imports -3.2%; exports +2.6% — Liz Ann Sonders (@LizAnnSonders)

There have been large monthly swings in trade this year related to U.S. implementation of tariffs. In particular, there’s been a surge in trade of nonmonetary gold and pharmaceutical preparations in recent months in response to Trump’s vacillating tariff announcements.

In addition to the decline in gold, imports of other industrial supplies and materials such as oil and metals also fell. Inbound shipments of computers and computer accessories picked up, suggesting “there are genuine signs of strength elsewhere in the economy amid the AI buildout,”��Bradley Saunders, North America economist for Capital Economics, said in a note.

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Separate government figures showed labor productivity accelerated in the third quarter to the fastest pace in two years, which stands to improve even more as companies invest more in artificial intelligence.

The trade volatility has also affected the government’s measure of economic activity — gross domestic product. Before the latest trade report, the Federal Reserve Bank of Atlanta’s GDPNow��forecast��net exports would subtract 0.3 percentage point from fourth-quarter growth. In the third quarter, they added 1.59 percentage points.

The trade volatility has also affected the government’s measure of economic activity — gross domestic product. After the latest trade report, the Federal Reserve Bank of Atlanta’s GDPNow��forecast��net exports would add nearly 2 percentage points to fourth-quarter growth, now estimated at 5.4%.

Trade in gold, unless used for industrial purposes such as in the production of jewelry, is excluded from the government’s GDP calculation. On an inflation-adjusted basis, which filters into the real GDP measurement, the merchandise trade deficit narrowed to $63 billion in October, the smallest since February 2020.��

Meanwhile, the goods-trade shortfall with Ireland narrowed sharply. Many of the largest U.S. drug companies, including Eli Lilly & Co. and Pfizer Inc., have��outsourced��much of their manufacturing to Ireland, lured by the country’s favorable tax environment.��

The deficits with Mexico and China widened, while the shortfall with Canada narrowed. The gap with Taiwan widened, likely reflecting the increases in imports of computers and accessories.

Canada’s merchandise trade balance swung back into deficit as surging imports of computers and electronics outweighed a spike in gold exports to non-U.S. countries,��according to��Statistics Canada data released Jan. 8. The report also showed the share of Canada’s exports headed to the U.S. dropped to 67.3%. Excluding the pandemic, that’s the lowest in data back to 1997.