By Sharon Nunn 

WASHINGTON -- The U.S. trade deficit reached its highest level in 10 years in October, led in part by tax-cut-driven domestic demand and a potentially tariff-related fall in exports.

The foreign-trade gap in goods and services rose 1.7% from the prior month to a seasonally adjusted $55.5 billion in October, the Commerce Department said Thursday. This is the largest deficit since October 2008. Imports grew 0.2% in October, while exports edged down 0.1%. The nonoil deficit is at a record level and "rising steadily," said Ian Shepherdson, chief economist at Pantheon Economics.

"Pumping up domestic demand with fiscal easing and picking fights with trading partners does that," Mr. Shepherdson wrote in a note to clients.

The jump in imports was driven by ramped-up demand in the U.S. Americans have more money in their pockets after the Trump administration's late-2017 tax cuts took effect at the beginning of this year, and when Americans shop, they tend to buy foreign-made goods.

On top of that, American wholesalers and manufacturers have experienced supply constraints this year, partly stemming from a shortage of qualified truck drivers to move goods around the country. This may encourage further importing by domestic buyers.

The drop in exports, meanwhile, was partly driven by a decline in soybean exports, which had contributed significantly to economic growth this year following a surge of exported soybeans ahead of looming tariffs.

In an attempt to close the widening trade gap, the Trump administration placed tariffs on billions of dollars of foreign-made products, including steel and solar panels. Foreign countries have placed retaliatory tariffs on U.S.-made products, though U.S. and Chinese officials recently agreed to hold off on any further trade barriers for 90 days while they negotiate.

October's exports drop "partly reflects the continued drop-back in soybean shipments to China following the imposition of tariffs....But there has also been a more general collapse in overall goods exports to China, which have now fallen by 30% over the past 12 months," said Andrew Hunter, U.S. economist at Capital Economics.

The deficit could worsen as the dollar strengthens, making U.S.-produced products more expensive to foreign buyers. Economic growth globally appears to be cooling, which could also hamper demand from abroad.

International trade data can be volatile from month to month. In the first 10 months of 2018, the overall trade deficit increased 11.4% in October when compared with the same period in 2017.

Historically speaking, the U.S. imports more good than it exports, but runs a modest trade surplus for services. Economists attribute the chronic trade deficit the U.S. has faced for decades to Americans consuming more than they produce relative to the rest of the world's economies.

Write to Sharon Nunn at sharon.nunn@wsj.com

(END) Dow Jones Newswires

December 06, 2018 13:23 ET (18:23 GMT)