A trade deficit occurs when a country imports more goods and services, by dollar value, than it exports. It can also signify an imbalance between two trading partners. This is contrary to a trade surplus, which arises when exports exceed imports.
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The U.S. has consistently maintained a trade deficit over the years. In 2024, the goods and services deficit amounted to $918.4 billion, marking a $133.5 billion increase from the previous year’s $784.9 billion, as per data from the Bureau of Economic Analysis (BEA). The most recent figures reveal a U.S. trade deficit of $122.7 billion for February, according to a report released on April 3 by the U.S. Census Bureau and the BEA.
Why Trump Disapproves of the Deficit
President Donald Trump has long been critical of the U.S. trade deficit, alleging that it stems from foreign trade policies that facilitate “cheating” or exploitation of the U.S. by other nations. Consequently, Trump aims to reverse the U.S. trade deficit by imposing tariffs, which essentially act as a tax on imports from foreign countries.
On April 2 — the day Trump announced broad “reciprocal” tariffs on trade partners — he declared a national emergency, attributing it to foreign trade and economic practices. A White House fact sheet highlighted that “Large and persistent annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base; resulted in a lack of incentive to increase advanced domestic manufacturing capacity; undermined critical supply chains; and rendered our defense-industrial base dependent on foreign adversaries.”
The fact sheet also indicated that Trump’s tariffs would remain effective until the president determines that the threat posed by the trade deficit is resolved. He believes that tariffs will prompt consumers to purchase more domestically-made products, thereby boosting the manufacturing sector in the U.S.
Trump’s tariff actions have initiated a trade war, which may elevate the cost of importing to the U.S. However, it is also anticipated to raise prices by increasing costs for businesses reliant on imported goods and raw materials, prompting them to transfer higher costs to consumers. Retaliatory tariffs from trade partners could further impact U.S. manufacturers dependent on exports.
Why Economists Have Less Concern About the Deficit
Numerous economists argue that the president’s emphasis on reducing bilateral trade deficits — addressing the deficit on a country-by-country basis — reveals a fundamental misunderstanding of how modern global trade and supply chains operate.
Moreover, economists suggest that the trade deficit has minimal impact on the economy’s strength or state. Despite the deficit persisting for decades, it has not impeded U.S. economic growth on an annual basis.
Essentially, a trade deficit simply indicates that the U.S. consumes more goods than it sells to all other countries. The U.S. operates on a consumption-based economy. Imported goods are often more affordable for U.S. consumers, and by diversifying the sources of goods, businesses can offer a wider variety of products to U.S. consumers.
Accessing an array of imported consumer goods does not diminish the U.S.’s position as a producer and exporter. In fact, the U.S. remains the world’s second-largest goods exporter.
Additionally, the U.S. is the leading services exporter globally. It also maintains a surplus of services, encompassing financial services, digital content, intellectual property, education, tourism, and media licensing. This services surplus aids in offsetting the goods deficit.
Economists contend that trade deficits are not inherently detrimental, as long as they are balanced by foreign investment in the U.S. economy.
Understanding the Trade Balance and Its Significance
The trade balance denotes the variance between a country’s exports and imports in terms of value.
The U.S. maintains a goods deficit and a surplus of services. In February, the goods deficit was $147 billion (-$8.8 billion) compared to the previous month, while the services surplus stood at $24.3 billion (-$800 million). As previously mentioned, the services surplus helps counterbalance a portion of the goods deficit, with the remainder constituting the trade balance.
However, trade balances vary when examined on a partner-specific basis. Here are the trade partners with whom the U.S. holds goods surpluses and deficits, based on the most recent data for February 2025, released on April 3 by the Census and the BEA:
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South and Central America: $4.8 billion.
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Netherlands: $4.1 billion.
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United Kingdom: $3.4 billion.
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Saudi Arabia: $200 million.
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European Union: $30.9 billion.
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Switzerland: $18.8 billion.
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Vietnam: $12.4 billion.
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South Korea: $4.5 billion.
Trump has imposed steep tariffs on several of the nation’s key trading partners, including those with whom the U.S. holds trade deficits, such as 145% on Chinese-made goods and 25% on various products from Mexico and Canada.
Retaliatory tariffs pose a threat to further disrupting U.S. trade balances. If services are targeted for tariffs, it could jeopardize the U.S. services surplus, crucial for offsetting the U.S. trade deficit.
The Relationship Between the Trade Deficit and National Debt
Trump has asserted that deficits with foreign countries have directly contributed to the national debt, but this is not entirely accurate.
A trade deficit does not have a direct impact on the national debt, which represents the total amount that the government has borrowed from the American public, foreign governments, and securities holders, but has yet to repay. However, trade deficits can influence foreign investment, which can aid in financing budget deficits.
A trade deficit does not carry the same economic implications as a budget deficit. The latter directly contributes to the national debt, which presently stands at $36.2 trillion, according to the U.S. Treasury Department.
A budget deficit signifies that the nation spends more than it generates through taxes, leading to borrowing to bridge the gap. Borrowed funds support government operations and cover interest on the existing national debt.
When the U.S. runs a trade deficit, it means that dollars flow out of the country and into foreign nations. Consequently, foreign investors — such as central banks or other governments — often reinvest money into U.S. Treasury securities, aiding in financing the budget deficit. Subsequently, the budget deficit contributes to the national debt.
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