The Tariffs will not accomplish their stated objectives
This article first appeared on SchiffGold.
The Trade Deficit is one of the two components of the ‘twin deficits’; the other being the federal budget deficit. The trade deficit used to be a number that received a ton of attention in the 1980s and 1990s because it was determined to be a strong gauge of the strength and weakness in the US economy. It was last positive in 1975, but big moves in the trade deficit through the 80s and 90s impacted the stock market.
Lately, not many people focus on the trade deficit numbers; however, it is still an excellent metric for identifying how the US is performing. How much more are we consuming than we are producing? It also allows us to export our inflation abroad. If the rest of the world decides to stop making things for us, then it could be an ugly transition.
The May trade deficit came in at -$71.5B which was back in line with the trend prior to the tariff announcements.
The tariffs were announced and created a front-running of purchases to fill up inventories. It was thought that this would cause a drop in the trade deficits after the front-running had ended. This did materialize as shown by the -$60B deficit in April. However, the numbers seem to be showing that the massive inventory build was not fully offset by future periods. This can be deduced by the fact that deficits are back in line with where they were last year (between -$60B and -$70B).
Figure 1: Monthly Plot Detail
The table below provides detail and shows how YoY both imports and exports have increased from the same time period in last July. This provides more evidence that the tariffs have not slowed down the deficits as they were designed to do.
Current Value compared to 1 month ago and 1 year ago | Trailing Twelve Month (TTM) Comparison | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Category | May 2025 | Apr 2025 | May 2024 | MoM % Change | YoY % Change | TTM Ending | TTM Ending | TTM Ending | TTM % Change | TTM % Change |
Export | ||||||||||
Goods | 180.2 | 191.6 | 170.3 | -5.9% | 5.8% | 2,130.2 | 2,055.4 | 2,099.2 | 3.6% | 1.5% |
Services | 98.8 | 99.0 | 94.7 | -0.2% | 4.4% | 1,176.0 | 1,085.2 | 1,005.5 | 8.4% | 17.0% |
Total | 279.0 | 290.6 | 265.0 | -4.0% | 5.3% | 3,306.2 | 3,140.6 | 3,104.8 | 5.3% | 6.5% |
Import | ||||||||||
Goods | -277.7 | -277.9 | -271.0 | -0.1% | 2.5% | -3,517.6 | -3,142.1 | -3,186.7 | 12.0% | 10.4% |
Services | -72.8 | -72.9 | -68.5 | -0.2% | 6.3% | -867.1 | -786.5 | -742.6 | 10.2% | 16.8% |
Total | -350.5 | -350.8 | -339.4 | -0.1% | 3.3% | -4,384.7 | -3,928.7 | -3,929.3 | 11.6% | 11.6% |
Net | ||||||||||
Goods | -97.5 | -86.3 | -100.6 | 13.0% | -3.1% | -1,387.4 | -1,086.7 | -1,087.5 | 27.7% | 27.6% |
Services | 26.0 | 26.0 | 26.2 | -0.2% | -0.7% | 308.9 | 298.7 | 263.0 | 3.4% | 17.5% |
Total | -71.5 | -60.3 | -74.5 | 18.7% | -3.9% | -1,078.6 | -788.0 | -824.5 | 36.9% | 30.8% |
Data as of: May 2025. Figures in Billions of $. | ||||||||||
Zooming out and focusing on the net numbers shows the longer-term trend. It really puts the front-running into perspective.
Figure 2: Historical Net Trade Balance
The Services Surplus has been drifting lower ever since the election but did bounce back in April and May.
Figure 3: Historical Services Surplus
To put it all together and remove some of the noise, the next plot below shows the Trailing Twelve Month (TTM) values for each month (i.e., each period represents the summation of the previous 12-months). The dip can be seen from the front-running on the far right. It will take 10 more months for these surges to get purged from the TTTM numbers.
Figure 4: Trailing 12 Months (TTM)
The TTM Net Trade Deficit surge has brought the deficit as a % of GDP to 3.61%. This is still well below the Covid years and pre-financial crisis.
Figure 5: TTM vs GDP
The chart below shows the YTD values. Exports are on trend, but Imports are ahead of trend.
Figure 6: Year to Date
The Trade Deficit still gets very little attention, but it serves as a huge windfall and potential risk for the US. Currently, foreign countries are willing to provide goods and services in exchange for USD that far exceeds what they are buying with the USD they earn.
The Tariffs will not accomplish the goal of the administration. The US is too reliant on subsidized foreign goods. Any improvement in the Trade Deficit will be short lived. Regardless, the current numbers are in line with where they were last year showing that no real progress has been made.