President Donald Trump justified his tariff offensive last year as a way to address the trade deficit, but the new taxes barely moved the needle. In fact, the gap between the value of goods the U.S. imports and goods it exports increased by 5.7 percent in 2025, according to Bureau of Economic Analysis data released Thursday.
The increase is in line with the pre-2025 trend, which is no surprise. That’s because the trade deficit is driven by patterns of saving and spending. Americans have high levels of consumption and a low savings rate relative to other countries. Hence, a trade deficit. Trade policies have little effect.
The flip side of a trade deficit is an investment surplus, something Trump inadvertently comprehends when he brags about foreigners investing in the U.S. That happens because U.S. dollars go abroad when Americans use them to buy goods from foreigners. Those dollars then come back as investment in America. The U.S. has the largest trade deficit in the world and is the largest recipient of foreign investment.
While tariffs didn’t affect the trade deficit, they did harm the U.S. economy. They have changed the composition of trade to make it less efficient, and Americans have been hit by over $200 billion in higher taxes. Instead of finding the best suppliers to serve their customers, companies are finding the best lobbyists to gain favor with the government.
The facts about the trade deficit are legally relevant. The Supreme Court could decide any day on the legality of the tariffs Trump imposed under the International Emergency Economic Powers Act (IEEPA). That law gives the president special powers to “deal with an unusual and extraordinary threat.” Trump says trade deficits are such a threat.
Put aside the question of whether IEEPA authorizes tariffs at all. And put aside the question of whether recent trade deficits are the kind of threat IEEPA meant to address. The data suggest that Trump’s tariffs don’t even “deal with” the trade deficit in a meaningful way.
If the IEEPA tariffs aren’t dealing with Trump’s declared emergency, then they are just an enormous tax hike. It’s actually the biggest revenue grab as a percent of GDP in over 30 years. And it was imposed without congressional approval.
Perhaps the administration will try to dismiss the latest trade data showing a rising trade deficit by saying trade deficits, by themselves, aren’t very important. That would at least have the advantage of being correct.
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