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The United States trade deficit in goods reached an all-time record of $1.24 trillion in 2025, driven by a surge in imports that outpaced export growth despite the imposition of heavy tariffs.

While the widening trade gap contributed to a downward revision of fourth-quarter GDP growth estimates, the high volume of capital goods imports—particularly those related to artificial intelligence and data center infrastructure—indicates sustained business investment.

Key Points

• The U.S. goods trade deficit hit a historic high of $1.24 trillion in 2025, with the December trade gap widening 32.6% to $70.3 billion, far exceeding economist forecasts.
• Record-breaking goods trade deficits were recorded with several nations, including Mexico, Vietnam, Taiwan, Ireland, Thailand, and India.
• In contrast to the global trend, the goods trade deficit with China narrowed significantly, falling to $202.1 billion from $295.5 billion the previous year.
• Import growth was driven primarily by capital goods such as computers, telecommunications equipment, and computer accessories, largely fueled by the construction of data centers to support artificial intelligence.
• Despite protectionist trade policies, U.S. manufacturing did not see a resurgence; factory employment decreased by 83,000 jobs between January 2025 and January 2026.

The larger-than-expected trade deficit prompted the Atlanta Federal Reserve to lower its fourth-quarter GDP growth estimate from a 3.6% to a 3.0% annualized rate. While the labor market remains relatively stable, economists noted that hiring has become sluggish due to tariff-related uncertainty and the impact of artificial intelligence.

Ultimately, the data suggests that the aggressive tariff policies failed to reduce overall trade imbalances or spark a manufacturing renaissance, as evidenced by declining factory employment and record deficits with multiple trading partners.

Furthermore, these policies led to increased costs for consumers and businesses, as tariffs raised the prices of imported goods and materials. Many industries reliant on global supply chains faced disruptions, further hampering their competitiveness in international markets. Instead of fostering economic growth, the measures appeared to exacerbate tensions with key trading partners, resulting in retaliatory tariffs that compounded the challenges for exporters.

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Chief Secretary to the Treasury, James Murray said: “We know there is more to do to stop one in every £10 the government spends going on debt interest, and we will more than halve borrowing by 2030-31 so that money can be spent on policing, schools and the NHS.”

Indian equities appear to have moved past several key uncertainties — from trade developments to recent earnings — yet the market continues to search for its next catalyst. Speaking to ET Now, Karthikraj Lakshmanan from UTI AMC said the macro backdrop remains supportive, noting that “macros are quite good… Q3 earnings were in line… fundamentals look good,” even though sector-specific corrections have weighed on the index in recent sessions.

He acknowledged the disconnect between positive fundamentals and subdued market performance, as the anchor observed that “on paper everything looks okay… but it is not reflecting on the ticker.” Lakshmanan responded that “flows are difficult to predict… if fundamentals and earnings accelerate, markets will follow,” adding that the environment is increasingly becoming a bottom-up market where stock selection matters more than broad liquidity trends.

Looking ahead, he struck an optimistic tone on growth, pointing out that “FY25–FY26 saw single-digit growth… FY27 could see double-digit GDP and earnings growth,” which he believes should support equities even without major earnings upgrades. On valuations, Lakshmanan said “large caps look more attractive… private banks have reasonable valuations,” highlighting financials as one of the more compelling pockets after recent corrections.

Discussing capital goods, he noted that while “business has done well post-COVID… government capex continues,” valuations in several names remain elevated, making selectivity important for investors. On broader markets, he reiterated that “diversification is a must,” adding that although indices may not show deep cuts, many individual mid- and small-cap stocks have undergone “silent corrections,” creating selective opportunities.

In the consumption space, Lakshmanan said “discretionary and durables have better growth prospects,” while within staples, foods appear structurally stronger. On autos, he observed that “PV growth remains strong… valuations must be watched,” and described the electric vehicle opportunity as evolving gradually rather than offering immediate pure-play opportunities.

Turning to primary markets, he said the “pipeline is strong,” suggesting that muted subscriptions and listings are largely cyclical and reflect market conditions rather than a lack of quality issuers.
Overall, Lakshmanan’s message was clear: while near-term triggers may be elusive, improving growth prospects and steady fundamentals should continue to underpin markets, with disciplined stock selection and valuation awareness remaining key for investors.

Q4: 2026-02-18 Earnings Summary

EPS of $0.74 beats by $0.05

 | Revenue of $788.06M (47.40% Y/Y) misses by $20.87M

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