U.S. Trade Deficit Hits Record High Ahead of Tariff Impact

While one of the stated goals of the Trump administration’s tariff policy is to close the U.S. trade deficit, the initial effect of the tariff offensive was exactly the opposite. As U.S. companies stocked up on goods and materials sourced abroad in anticipation of higher tariffs, imports of goods increased at an annual rate of 51 percent in the first quarter of 2025, resulting in the largest-ever trade deficit even after accounting for inflation.

According to the U.S. Bureau of Economic Analysis, real net exports of goods and services, i.e. exports minus imports measured in chained 2017 dollars, fell to a seasonally adjusted annual rate of minus $1.37 trillion in the Q1 2025, compared to just $1.05 trillion in the preceding quarter.

With most of the new tariffs having come into effect in April, it will be interesting to see how U.S. trade flows develop in the second quarter of 2025. Without the effect of front-loading, imports are likely going to drop significantly from Q1 levels while the effect of the trade war on U.S. exports is less predictable.