Once year-ending 2025 trade data is released in February, we will be looking at another $1 trillion deficit. Assuming the monthly goods deficit for November and December looks like the low October goods deficit of $58.5 billion, the U.S. will record a minimum $1.17 trillion goods gap for 2025, the second largest trade deficit since 2024’s $1.2 trillion barnstormer. But should November and December numbers come in higher than October (say around the usual $76 billion), we will beat those 2024 record numbers. Pundits and the political opposition will immediately declare the tariff strategy has failed to balance trade because the deficit remains as high as ever. Are they right?
Trade Gap: Not as Bad as it Looks?
The government looks at a number of deficits to monitor the country’s economic well-being. The one most often cited is the fiscal deficit. This is the one Wall Street cares about most because it shows how much the government needs to borrow to pay its obligations. But the one that matters to CPA is the trade deficit. That is the gauge that reveals whether local producers are being crowded out or replaced by imports.
A trade deficit matters because it changes who is doing the spending and investing in an economy, how exposed key sectors are to foreign competition, and how much domestic production and capacity is displaced. Trade deficits redirect income and credit creation away from domestic producers, weakening productive investment domestically and shifting bank lending toward non-productive uses such as asset speculation and inflation. It also impacts how dependent a country becomes on foreign capital over time. Trade deficits show up as a negative balance of trade in the current account and are financed by selling assets or borrowing from abroad, giving up domestic production for foreign ownership and debt.
A 2025 trillion dollar deficit suggests more of the same in year one of the America First Trade Policy agenda. But if you look at the deficit in terms of its percentage of GDP, then we can say the goods deficit is in decline.
The above chart includes services. The deficit as a percentage of GDP has fallen to its lowest level in five years as the economy grows.
This trend holds for the goods and services trade and only goods, too. The United States has run a modest services trade surplus for decades, but the goods trade has changed in 2025 as a direct result of tariffs. The deficit shrank as a percentage of GDP because the U.S. economy grew and imports narrowed, reversing the post-COVID import surge.
This chart shows what the deficit as percentage of GDP looked like in the early years of China’s entrance into the World Trade Organization beginning in 2001 added to the overall import boom in that period. Remapping supply chains out of China while growing the domestic economy is helping lower the trade deficit as percentage of GDP, but more will depend on local investment in manufacturing. Relying less on China, but more on Vietnam and Mexico won’t help much.
The goods-only trade shows a similar pattern.
From April 2024 to October 2024, the monthly U.S. goods deficit averaged $113.1 billion. From April 2025 to October 2025, when global tariff rates increased in hopes to stem the flow of imports, the monthly goods deficit fell 14% to $97.31 billion per month. The full year deficit total is only higher because of the January to March 2025 import boom, which saw a 32% increase in average monthly imports. Importers stockpiled goods during this time period in anticipation of higher tariffs which hit in April 2025.
Over a longer period, we can see that the trade deficit got out of control when NAFTA went into effect in 1994 and got even worse when China entered the WTO in 2001. Tariff rates for Mexico went to zero for most goods and China was granted Most Favored Nation status so most of their goods were tariffed at just 3.4% on average. The “improvement” of the trade deficit to GDP ratio in the Obama years is mostly due to the Great Recession (late-2007 to mid-2009) and less overall domestic consumption.
The trade deficit hit a low point in 2019 despite a growing economy in the aftermath of Trump’s first term tariffs, but the deficit worsened again during COVID when demand was artificially propped up by government stimulus, loose monetary policy, and credit expansion while exports and production stagnated due to shutdowns. This trade deficit remained persistent even after COVID because import flows shifted away from direct Chinese trade, which was tariffed, and towards Mexico and Southeast Asia instead. But we now have a more forceful and forward looking America First agenda in effect that seeks to rewrite the old rules of globalization. Deficits – both fiscal and trade – will signal the success of this agenda.
The trade policies of the second term Trump administration are just getting started. The National Security Strategy, released only in November, explains this agenda clearly. In short: economic security is national security.
The U.S. will prioritize rebalancing trade relations, reducing trade deficits, and opposing barriers to exports. And the government will use the defense market to build and fund the factories of the future – whether it be critical minerals and materials science, new energy, or satellites.
Industries deemed important to national security – and with a large, middle class income earning work force – will be protected by tariffs. Cars and steel are good examples of this.
Our priorities must and will be our own workers, our own industries, and our own national security. The United States will reindustrialize its economy, re-shore industrial production, and encourage and attract investment in our economy and our workforce, with a focus on the critical and emerging technology sectors that will define the future. We will do so through the strategic use of tariffs and new technologies that favor widespread industrial production in every corner of our nation, raise living standards for American workers, and ensure that our country is never again reliant on any adversary, present or potential, for critical products or components.
The Other Deficit: Why Tariff Revenue is Imperative
The fiscal deficit is the most worrisome to the economic policy players in the Executive Branch.
The fiscal deficit in the U.S. is around $1.7 trillion as of fiscal year 2025. This is the difference between what the federal government takes in from taxes and fees, and what it dishes out in social services and subsidies.
The U.S. used to have a lower fiscal deficit compared to GDP.
The fiscal deficit remains a top concern of Wall Street and is one of the reasons why investors have learned to accept a baseline 10% tariff – they, too, see it as a revenue raiser and a necessary means to keep taxes in check seeing how the government often struggles to cut spending.
The fiscal deficit as a percentage of GDP improved in 2025. Treasury Secretary Scott Bessent recently estimated it to have fallen back to around 2022 levels.
“For the calendar year, the deficit actually went down by about $200 billion,” Bessent said on the War Room podcast on Jan. 20. “A big reason for that was President Trump’s tariffs. We had a fiscal contraction, and then we grew the GDP. So the really important number to look at here is the (fiscal) deficit to GDP. In 2024, the deficit to GDP was 6.9%. This past year, 2025, it was 5.4%. We’ve made a dent in the deficit to GDP.”
The government brought in close to $200 billion in tariff revenue, some of it from the Section 232 tariffs, and some of it from the International Economic Emergency Powers Act (IEEPA) tariffs. The Supreme Court is considering whether these tariffs are lawful or not. Should they rule against them, the Trump administration will need to turn to Congress to codify a 10% revenue tariff and remove China’s Most Favored Nation tariff rate to protect that income.
There is already a bipartisan bill in the House (the ‘Secure Trade Act’) ready to go should that day come.
Protective tariffs would come from more Section 232 tariffs, a more managed trade approach that implements tariffs on a tailored product-by-product basis – using methods such as tariff rate quotas (TRQ) adjusted according to U.S. capacity and demand.
Lutnick Tells Davos U.S. Will Favor Local Industry
The World Economic Forum attendees were taken to school last week in what the majority there must see as a lesson being handed out by American revolutionaries in revolt against the post-World War II globalization model they helped build.
Commerce Secretary Howard Lutnick explained the U.S. trade stance. His short explainer is the foundational argument and description of what we are seeing today in global trade. Last week, in fact, GM announced that the Buick models it made in China for export to the U.S. will now be made in Kansas. This is economic statecraft bearing fruit. Pressure points on China, and tariffs, made this happen. GM would unlikely have made this decision otherwise.
“We are here to make a very clear point,” Lutnick told the Davos crowd. “Globalization has failed the West and the United States. It’s a failed policy. It’s what the West has stood for: export. Offshore. Find the cheapest labor in the world and the world will be a better place for it. The fact is that that has left American workers behind.”
America First is a different model. We encourage other countries to consider this model. It means our workers come first. You shouldn’t offshore your medicine, you shouldn’t offshore your semiconductor industry or your entire industrial base and you should not be dependent on things that are fundamental to your sovereignty. And if you are going to be dependent, it better be your best ally. That is a different way of thinking.
At a recent Detroit Economic Club event, Trump said his trade policies collapsed the trade deficit in October. The October deficit fell to its lowest level in years. He is right about that. But the year-ender will not look as good if considering the total deficit alone and not comparing it to the overall GDP.
Imports surged in the first quarter ahead of expectations of the April “Liberation Day” global tariff rate announcements. They surged again in July as that was the last month following a 90-day pause on the IEEPA tariffs. If the Supreme Court allows those tariffs to stay, 2026 should see a lower trade deficit overall. It would also create a sense of permanence in the Trump trade doctrine. Should the economy grow at current rates, with most economists predicting it will at the moment, the trade deficit as a percentage of GDP should fall again in 2026. That will be a sign that the strategic rebalancing of the global economy is working in America’s favor.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
Why the 2025 Trade Deficit Might Not be as Bad as it Looks
Once year-ending 2025 trade data is released in February, we will be looking at another $1 trillion deficit. Assuming the monthly goods deficit for November and December looks like the low October goods deficit of $58.5 billion, the U.S. will record a minimum $1.17 trillion goods gap for 2025, the second largest trade deficit since 2024’s $1.2 trillion barnstormer. But should November and December numbers come in higher than October (say around the usual $76 billion), we will beat those 2024 record numbers. Pundits and the political opposition will immediately declare the tariff strategy has failed to balance trade because the deficit remains as high as ever. Are they right?
Trade Gap: Not as Bad as it Looks?
The government looks at a number of deficits to monitor the country’s economic well-being. The one most often cited is the fiscal deficit. This is the one Wall Street cares about most because it shows how much the government needs to borrow to pay its obligations. But the one that matters to CPA is the trade deficit. That is the gauge that reveals whether local producers are being crowded out or replaced by imports.
A trade deficit matters because it changes who is doing the spending and investing in an economy, how exposed key sectors are to foreign competition, and how much domestic production and capacity is displaced. Trade deficits redirect income and credit creation away from domestic producers, weakening productive investment domestically and shifting bank lending toward non-productive uses such as asset speculation and inflation. It also impacts how dependent a country becomes on foreign capital over time. Trade deficits show up as a negative balance of trade in the current account and are financed by selling assets or borrowing from abroad, giving up domestic production for foreign ownership and debt.
A 2025 trillion dollar deficit suggests more of the same in year one of the America First Trade Policy agenda. But if you look at the deficit in terms of its percentage of GDP, then we can say the goods deficit is in decline.
The above chart includes services. The deficit as a percentage of GDP has fallen to its lowest level in five years as the economy grows.
This trend holds for the goods and services trade and only goods, too. The United States has run a modest services trade surplus for decades, but the goods trade has changed in 2025 as a direct result of tariffs. The deficit shrank as a percentage of GDP because the U.S. economy grew and imports narrowed, reversing the post-COVID import surge.
This chart shows what the deficit as percentage of GDP looked like in the early years of China’s entrance into the World Trade Organization beginning in 2001 added to the overall import boom in that period. Remapping supply chains out of China while growing the domestic economy is helping lower the trade deficit as percentage of GDP, but more will depend on local investment in manufacturing. Relying less on China, but more on Vietnam and Mexico won’t help much.
The goods-only trade shows a similar pattern.
From April 2024 to October 2024, the monthly U.S. goods deficit averaged $113.1 billion. From April 2025 to October 2025, when global tariff rates increased in hopes to stem the flow of imports, the monthly goods deficit fell 14% to $97.31 billion per month. The full year deficit total is only higher because of the January to March 2025 import boom, which saw a 32% increase in average monthly imports. Importers stockpiled goods during this time period in anticipation of higher tariffs which hit in April 2025.
Over a longer period, we can see that the trade deficit got out of control when NAFTA went into effect in 1994 and got even worse when China entered the WTO in 2001. Tariff rates for Mexico went to zero for most goods and China was granted Most Favored Nation status so most of their goods were tariffed at just 3.4% on average. The “improvement” of the trade deficit to GDP ratio in the Obama years is mostly due to the Great Recession (late-2007 to mid-2009) and less overall domestic consumption.
The trade deficit hit a low point in 2019 despite a growing economy in the aftermath of Trump’s first term tariffs, but the deficit worsened again during COVID when demand was artificially propped up by government stimulus, loose monetary policy, and credit expansion while exports and production stagnated due to shutdowns. This trade deficit remained persistent even after COVID because import flows shifted away from direct Chinese trade, which was tariffed, and towards Mexico and Southeast Asia instead. But we now have a more forceful and forward looking America First agenda in effect that seeks to rewrite the old rules of globalization. Deficits – both fiscal and trade – will signal the success of this agenda.
The trade policies of the second term Trump administration are just getting started. The National Security Strategy, released only in November, explains this agenda clearly. In short: economic security is national security.
The U.S. will prioritize rebalancing trade relations, reducing trade deficits, and opposing barriers to exports. And the government will use the defense market to build and fund the factories of the future – whether it be critical minerals and materials science, new energy, or satellites.
Industries deemed important to national security – and with a large, middle class income earning work force – will be protected by tariffs. Cars and steel are good examples of this.
The Other Deficit: Why Tariff Revenue is Imperative
The fiscal deficit is the most worrisome to the economic policy players in the Executive Branch.
The fiscal deficit in the U.S. is around $1.7 trillion as of fiscal year 2025. This is the difference between what the federal government takes in from taxes and fees, and what it dishes out in social services and subsidies.
The U.S. used to have a lower fiscal deficit compared to GDP.
The fiscal deficit remains a top concern of Wall Street and is one of the reasons why investors have learned to accept a baseline 10% tariff – they, too, see it as a revenue raiser and a necessary means to keep taxes in check seeing how the government often struggles to cut spending.
The fiscal deficit as a percentage of GDP improved in 2025. Treasury Secretary Scott Bessent recently estimated it to have fallen back to around 2022 levels.
“For the calendar year, the deficit actually went down by about $200 billion,” Bessent said on the War Room podcast on Jan. 20. “A big reason for that was President Trump’s tariffs. We had a fiscal contraction, and then we grew the GDP. So the really important number to look at here is the (fiscal) deficit to GDP. In 2024, the deficit to GDP was 6.9%. This past year, 2025, it was 5.4%. We’ve made a dent in the deficit to GDP.”
The government brought in close to $200 billion in tariff revenue, some of it from the Section 232 tariffs, and some of it from the International Economic Emergency Powers Act (IEEPA) tariffs. The Supreme Court is considering whether these tariffs are lawful or not. Should they rule against them, the Trump administration will need to turn to Congress to codify a 10% revenue tariff and remove China’s Most Favored Nation tariff rate to protect that income.
There is already a bipartisan bill in the House (the ‘Secure Trade Act’) ready to go should that day come.
Protective tariffs would come from more Section 232 tariffs, a more managed trade approach that implements tariffs on a tailored product-by-product basis – using methods such as tariff rate quotas (TRQ) adjusted according to U.S. capacity and demand.
Lutnick Tells Davos U.S. Will Favor Local Industry
The World Economic Forum attendees were taken to school last week in what the majority there must see as a lesson being handed out by American revolutionaries in revolt against the post-World War II globalization model they helped build.
Commerce Secretary Howard Lutnick explained the U.S. trade stance. His short explainer is the foundational argument and description of what we are seeing today in global trade. Last week, in fact, GM announced that the Buick models it made in China for export to the U.S. will now be made in Kansas. This is economic statecraft bearing fruit. Pressure points on China, and tariffs, made this happen. GM would unlikely have made this decision otherwise.
“We are here to make a very clear point,” Lutnick told the Davos crowd. “Globalization has failed the West and the United States. It’s a failed policy. It’s what the West has stood for: export. Offshore. Find the cheapest labor in the world and the world will be a better place for it. The fact is that that has left American workers behind.”
At a recent Detroit Economic Club event, Trump said his trade policies collapsed the trade deficit in October. The October deficit fell to its lowest level in years. He is right about that. But the year-ender will not look as good if considering the total deficit alone and not comparing it to the overall GDP.
Imports surged in the first quarter ahead of expectations of the April “Liberation Day” global tariff rate announcements. They surged again in July as that was the last month following a 90-day pause on the IEEPA tariffs. If the Supreme Court allows those tariffs to stay, 2026 should see a lower trade deficit overall. It would also create a sense of permanence in the Trump trade doctrine. Should the economy grow at current rates, with most economists predicting it will at the moment, the trade deficit as a percentage of GDP should fall again in 2026. That will be a sign that the strategic rebalancing of the global economy is working in America’s favor.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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