The trade deficit doesn’t matter, but even if it did, tariffs aren’t an effective way to reduce it.
In July, the monthly trade deficit in goods hit its highest level since March 2025, the Commerce Department revealed on Thursday. That was the month before President Donald Trump’s announcement last year of massive tariffs on products from nearly every country in the world.
The Supreme Court’s February ruling against Trump struck down only tariffs he imposed under one law. He has imposed import duties under other laws before and after that ruling. They remain in effect. The average tariff rate is currently about 11 percent, which is more than four times higher than it was when Trump started his second term.
A key argument the administration made to the justices was that the trade deficit is a national emergency, and tariffs are necessary to reduce it.
Intuition suggests tariffs could bring down the trade deficit. Tariffs are a tax on imported goods, and taxing something more means people will buy less of it. Fewer imports with the same amount of exports would therefore lower the trade deficit.
Absurdly, the Trump administration simultaneously claims that tariffs aren’t taxes and don’t raise prices.
The problem for the Trump team is that imports and exports often move together. In other words, reducing imports also reduces exports, so the difference between them — the trade deficit — hardly changes.
Another reason that a fall in imports did not cause a significant reduction in the trade deficit is that Americans were stocking up before the tariffs came into effect, so imports fell to their normal level when they did.
If tariffs worked as the administration would have had the Supreme Court believe, imports should have fallen well below their 2023 to 2024 levels as Americans switched from buying foreign goods to domestic ones.
Instead, there was more total trade but roughly the same deficit. In the past few months, exports have fallen while imports have remained high, leading to the higher deficit in July.
One might argue that the trade deficit would be even higher were it not for the tariffs. But experience shows that the goods trade deficit could remain roughly flat when average tariffs were low and stable, such as between 2005 and 2008 or 2011 and 2016.
Don’t mistake the lack of a tariff effect on the trade deficit for a lack of harm to the economy. The meaninglessness of the trade deficit cuts both ways.
The topline number is an aggregation that masks changes in purchases of particular goods. It doesn’t tell us anything about prices or economic growth. Nor does it say anything about the compliance costs of keeping up with the government’s constant changes in rates.
The trade deficit is a number, nothing more. It is primarily determined by differences in saving and investment patterns between countries, not by trade policy. Trying to control it with tariffs is like trying to change the score of a football game by yelling from the bleachers.
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