The recent Supreme Court decision that President Trump did not have arbitrary and unbounded powers he has claimed to impose or retrace tariffs came as no surprise, for a variety reasons laid out in earlier posts here, here, and here. But here I want to focus on a different claim: that the reason for tariffs was to reduce the US trade deficit.
Broadly speaking, there are two possible explanations for trade deficits. One possible explanation is that other countries are competing unfairly in some way, that this unfairness penalizes US exports and subsidizes US imports, and thus leads to a trade deficit. The other possible explanation argues that trade deficits are determined by macroeconomic factors like total levels of production and consumption, along with domestic savings and investment. From this view, government policies to subsidize or penalize certain industries will certainly affect those industries, and lead to shifts between industries. However, this second view argues, such policies won’t determine the trade deficit.
Well, President Trump started imposing tariffs last April. The effective tariff rate (that is, the average over all goods) rose substantially. The federal revenue collected by tariffs rose from near-zero to about 1% of GDP in the most recent federal budget projections–call it roughly $300 billion per year.
We have here a test of the two hypotheses about what causes trade deficits. Did the US government actions to disfavor imports in fact reduce the trade deficit? The US Department of Commerce just released the trade data for the full calendar year 2025, and here’s what the overall picture of imports and exports looks like:
It is simply a fact that the US trade deficit in 2025 barely budged, even with Trump’s tariffs. As the Census Bureau reports: “For 2025, the goods and services deficit was $901.5 billion, down $2.1 billion from $903.5 billion in 2024”.
You can break this down separately into goods and services. In goods, where Trump’s tariffs were focused, the US trade deficit got larger. In services, the US trade surplus got bigger. Census writes: “The 2025 decrease in the goods and services deficit reflected an increase in the goods deficit of $25.5 billion, or 2.1 percent, to $1,240.9 billion and an increase in the
services surplus of $27.6 billion, or 8.9 percent, to $339.5 billion.”
Yes, tariffs have effects. For example, they can reallocate where imports come from between countries. For example, imports of goods from China were $438 billion in 2024, and dropped to $308 billion in 2025. But reallocating imports and exports between countries is not the same as changing the overall balance of trade.
Indeed, the erratic and untargeted nature of Trump’s tariffs means that they have not even focused on the kinds of trade that matters most for the US economy. As one of the Census tables, the US economy had a trade deficit in advanced technology products of $297 billion in 2024 (that is, $763 billion in imports and $466 billion in exports). In 2025, with a blast of US tariffs, the US trade deficit in advanced technology products was even larger at $414 billion (that is, $965 billion in imports and $550 billion in exports).
It is a basic lesson in intro economics that trade deficits are determined by macroeconomic forces, not by levels of governmental fairness or unfairness about trade. I have tried to explain the macroeconomic argument on this blog a number of times, and I won’t bother trying again here. My point here is just to focus on the fact that if you believed that Trump’s tariffs would put a big dent in US trade deficits, your belief is being disproved by facts. Tariffs can readjust what goods and services are shipped, and to and from what places. But they are not in fact a way of addressing the overall US trade deficits.
