The August trade deficit fell a significant 23.8%, with exports flat and imports down 5% due in large part to the 90-day reprieve from the so-called “Liberation Day” tariffs expiring.
Trump imposed tariffs on the world using the International Economic Emergency Powers Act (IEEPA) on April 2. Critics said it was too much, too soon, and Trump agreed to a 90-day pause to try and get concessions on trade from major countries first. Despite a handful of deals happening over the summer, the rest of the world was finally hit with IEPPA tariffs in August, leading to a slowdown in imports.
The U.S. goods and services deficit came in at $59.6 billion in August, down $18.6 billion from the revised $78.2 billion in July, the Bureau of Economic Analysis said on Wednesday.
The August goods deficit was $85.6 billion, the lowest on the year. Still, that figure is not a recent low as some might have expected given higher tariffs kicking in that month. The U.S. had a goods deficit of $81 billion in March 2023 when President Biden was in charge. This shows that companies large and small are still import dependent and it will take time for them to reshore, or find new sources in Mexico and Canada which, for now, have duty-free access for most goods providing they are USMCA compliant.
“The data shows companies remain heavily dependent on foreign supply chains, but once you put real pressure on those chains, the trade gap narrows fast. This is exactly what you expect when tariffs start doing their job — they pull imports down and help reduce our trade deficits, which is the goal,” said Mihir Torsekar, senior economist at CPA.
Top Import-Dependent Sectors
The only sector that showed a surplus in August was industrial supplies, and that is mostly due to petroleum products.
In order, the biggest sectoral goods deficits were in consumer goods (-$34 billion), capital goods (-$30 billion), cars (-$21.9 billion) and food and beverage (-$2.2 billion).
The U.S. did record a higher deficit for August in cars (-$24.1 billion) and food (-$4.9 billion) back in 2024.
For cars, tariffs are shifting production to the U.S. GM had said it would reduce production of certain models and car parts in Canada and Mexico in favor of making them in the U.S., even though those products would be permitted duty-free access if they met USMCA content requirements. Unlike Mexico, Canada imposed retaliatory tariffs which did not work to their advantage.
Only Mexican and Canada sourced vehicles and automotive parts that fail to meet content requirements are subject to Section 232 tariffs of 25%. The percentage of products that are not meeting those requirements is unknown, though some have put it at around 5%. GM shifting production to the U.S. might suggest that number is higher. It could also reveal that GM is considering the longer term risks associated with USMCA’s renewal next year.
Top Five Deficit Items
August Deficit
YTD 2025
YTD 2024
Computers
$15.3 billion
$102.08 billion
$59.27 billion
Passenger vehicles
$9.5 billion
$109.14 billion
$104.19 billion
Auto parts
$7.59 billion
$55.68 billion
$58.44 billion
Pharmaceuticals
$5.68 billion
$131.19 billion
$83.97 billion
Computer accessories
$5.1 billion
$54.36 billion
$36.44 billion
Source: Bureau of Economic Analysis, Part A, Exhibit 8, August 2025, released November 19, 2025.
Pharmaceuticals remain the biggest, single source of our trade deficit.
Worth noting here, however, is that the deficit values year-to-date are still higher than they were over the same period last year. Some of this can be explained by front running tariffs earlier in the year.
Is Vietnam Starting to Replace China?
The deficit with China continues to tighten due to tariffs and overall geopolitical risk. But the deficit with Vietnam is ready to take its place. Vietnam is essentially the key country in the China-Plus-One strategy, where multinationals have opted to source from there, as well as other Southeast Asian nations, due to rising business costs and political risks in China. Tariffs have moved this trend further along so now our deficit with Vietnam for August was $15.03 billion, trailing the $15.89 billion deficit with Mexico. China is still No. 1 with an August deficit of $16.86 billion.
The top five trade deficits YTD 2025
China: -$145.44 billion vs -$185.17 billion YTD 2024
Mexico: -$128.48 billion vs -$109.27 billion
Vietnam: -$112.99 billion vs -$77.56 billion
Ireland: -$87.76 billion vs -$52.74 billion
Taiwan: -$83.97 billion vs -$46.88 billion
Ireland is an anomaly in Europe thanks to favorable taxation and offshoring of pharmaceuticals, in particular. Many U.S.-owned multinationals use Ireland as a hub for intellectual property, intra-company services, and license-fee flows.
The U.S. goods deficit with the European Union is $209 billion, up from $151 billion between Jan-Aug. 2024. Again, most of these numbers are due to a first quarter tariff implosion ahead of Trump’s “Liberation Day” announcement in April.
Overall, our goods gap with the world sits at $925.09 billion compared to $778 billion during the same period last year. Assuming an $80 billion deficit per month for the next four months, the U.S. will once again register a $1 trillion-plus goods deficit. This is due to companies’ dependencies on foreign supply chains, not to mention entire business models built on imports alone. It is going to take years to change these business strategies.
“I think August’s 23.8% drop in the trade deficit shows tariffs are working,” said Andrew Rechenberg, CPAs economist. “Imports fell by $18.6 billion overall, and tariffs are not fueling inflation. As of August, nonfuel import prices are up only 0.9% over the past year, while overall inflation was 2.9%, driven by housing, food, and energy. We can cut dependence on foreign supply without pushing prices higher.”
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.
Tariffs Cause August Trade Deficit To Fall 23.8% As “Liberation Day” Tariffs Kicked In
The August trade deficit fell a significant 23.8%, with exports flat and imports down 5% due in large part to the 90-day reprieve from the so-called “Liberation Day” tariffs expiring.
Trump imposed tariffs on the world using the International Economic Emergency Powers Act (IEEPA) on April 2. Critics said it was too much, too soon, and Trump agreed to a 90-day pause to try and get concessions on trade from major countries first. Despite a handful of deals happening over the summer, the rest of the world was finally hit with IEPPA tariffs in August, leading to a slowdown in imports.
The U.S. goods and services deficit came in at $59.6 billion in August, down $18.6 billion from the revised $78.2 billion in July, the Bureau of Economic Analysis said on Wednesday.
The August goods deficit was $85.6 billion, the lowest on the year. Still, that figure is not a recent low as some might have expected given higher tariffs kicking in that month. The U.S. had a goods deficit of $81 billion in March 2023 when President Biden was in charge. This shows that companies large and small are still import dependent and it will take time for them to reshore, or find new sources in Mexico and Canada which, for now, have duty-free access for most goods providing they are USMCA compliant.
“The data shows companies remain heavily dependent on foreign supply chains, but once you put real pressure on those chains, the trade gap narrows fast. This is exactly what you expect when tariffs start doing their job — they pull imports down and help reduce our trade deficits, which is the goal,” said Mihir Torsekar, senior economist at CPA.
Top Import-Dependent Sectors
The only sector that showed a surplus in August was industrial supplies, and that is mostly due to petroleum products.
In order, the biggest sectoral goods deficits were in consumer goods (-$34 billion), capital goods (-$30 billion), cars (-$21.9 billion) and food and beverage (-$2.2 billion).
The U.S. did record a higher deficit for August in cars (-$24.1 billion) and food (-$4.9 billion) back in 2024.
For cars, tariffs are shifting production to the U.S. GM had said it would reduce production of certain models and car parts in Canada and Mexico in favor of making them in the U.S., even though those products would be permitted duty-free access if they met USMCA content requirements. Unlike Mexico, Canada imposed retaliatory tariffs which did not work to their advantage.
Only Mexican and Canada sourced vehicles and automotive parts that fail to meet content requirements are subject to Section 232 tariffs of 25%. The percentage of products that are not meeting those requirements is unknown, though some have put it at around 5%. GM shifting production to the U.S. might suggest that number is higher. It could also reveal that GM is considering the longer term risks associated with USMCA’s renewal next year.
Top Five Deficit Items
August Deficit
YTD 2025
YTD 2024
Computers
$15.3 billion
$102.08 billion
$59.27 billion
Passenger vehicles
$9.5 billion
$109.14 billion
$104.19 billion
Auto parts
$7.59 billion
$55.68 billion
$58.44 billion
Pharmaceuticals
$5.68 billion
$131.19 billion
$83.97 billion
Computer accessories
$5.1 billion
$54.36 billion
$36.44 billion
Source: Bureau of Economic Analysis, Part A, Exhibit 8, August 2025, released November 19, 2025.
Pharmaceuticals remain the biggest, single source of our trade deficit.
Worth noting here, however, is that the deficit values year-to-date are still higher than they were over the same period last year. Some of this can be explained by front running tariffs earlier in the year.
Is Vietnam Starting to Replace China?
The deficit with China continues to tighten due to tariffs and overall geopolitical risk. But the deficit with Vietnam is ready to take its place. Vietnam is essentially the key country in the China-Plus-One strategy, where multinationals have opted to source from there, as well as other Southeast Asian nations, due to rising business costs and political risks in China. Tariffs have moved this trend further along so now our deficit with Vietnam for August was $15.03 billion, trailing the $15.89 billion deficit with Mexico. China is still No. 1 with an August deficit of $16.86 billion.
The top five trade deficits YTD 2025
Ireland is an anomaly in Europe thanks to favorable taxation and offshoring of pharmaceuticals, in particular. Many U.S.-owned multinationals use Ireland as a hub for intellectual property, intra-company services, and license-fee flows.
The U.S. goods deficit with the European Union is $209 billion, up from $151 billion between Jan-Aug. 2024. Again, most of these numbers are due to a first quarter tariff implosion ahead of Trump’s “Liberation Day” announcement in April.
Overall, our goods gap with the world sits at $925.09 billion compared to $778 billion during the same period last year. Assuming an $80 billion deficit per month for the next four months, the U.S. will once again register a $1 trillion-plus goods deficit. This is due to companies’ dependencies on foreign supply chains, not to mention entire business models built on imports alone. It is going to take years to change these business strategies.
“I think August’s 23.8% drop in the trade deficit shows tariffs are working,” said Andrew Rechenberg, CPAs economist. “Imports fell by $18.6 billion overall, and tariffs are not fueling inflation. As of August, nonfuel import prices are up only 0.9% over the past year, while overall inflation was 2.9%, driven by housing, food, and energy. We can cut dependence on foreign supply without pushing prices higher.”
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.
TRENDING
November Trade Deficit Returns to Normal After October Lull; Record Goods Deficit Likely In 2025
Senate Committee: Why Can’t We Label Where Pharmaceuticals Come From?
Who is Really Paying for Trump’s Tariffs?
Why the 2025 Trade Deficit Might Not be as Bad as it Looks
China’s Record Trade Surplus and Washington’s Financial Trump Card
The latest CPA news and updates, delivered every Friday.
WATCH: WORTH FIGHTING FOR
Get the latest in CPA news, industry analysis, opinion, and updates from Team CPA.
CHECK OUT THE NEWSROOM ➔