The U.S. trade deficit in goods and services grew to $88.6 billion in July, the largest gap in 16 months, according to Commerce Department data released Thursday. This represents a 24% increase from June, driven by surging imports of electronics to support the artificial intelligence boom. Imports rose 2.8% to $399.3 billion while exports fell 2.1% to $310.7 billion, with declining shipments of gold and crude oil.

The deficit exceeds the average monthly shortfall from the year before President Trump took office and is the largest since he began imposing tariffs in earnest last April. Despite Trump’s tariff strategy aimed at reducing the deficit and boosting domestic manufacturing, supply chain disruptions from Iran-related tensions and ongoing legal challenges have undermined its effectiveness. The administration has exempted chips, smartphones, and other electronics from tariffs for over a year to avoid hindering data center construction, which fuels investment and stock market growth.

In July, imports of capital goods—including computers—reached a record high, and the trade deficit with Taiwan, a key chip supplier, hit a record $20.7 billion. U.S. goods imports from Taiwan totaled $143 billion in the first half of the year, surpassing imports from China at $140 billion. Deficits with Mexico, Vietnam, Thailand, and South Korea also rose. Officials signal upcoming tariffs on chips but expect significant carve-outs for firms building U.S. chip facilities.

The war in Iran continues to disrupt oil, fertilizer, packaging, and helium supply chains via Strait of Hormuz closures, while a 50% tariff on $20 billion in Canadian exports remains in effect after trade talks collapsed, with Canada planning retaliatory measures starting September 8.