Is the drop in imports a result of higher tariffs or the surge in inventories?
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 October trade deficit came in at -$29.3B. This is the smallest trade deficit since the 2009 Great Financial Crisis. The fall in the deficit is primarily driven by a collapse in Imports. This is driven by tariffs. Earlier in 2025, before tariffs went into effect, imports surged as people tried to dodge tariffs. That inventory buildup has resulted in less imports now. In addition, imports that were going to the US are now going to other countries where tariffs have not been implemented. Needless to say, foreigners are not paying the tariffs—US consumers are just getting less stuff.
Figure 1: Monthly Plot Detail
The table below provides detail and shows a more specific reason as to why the deficit is shrinking. Net Imports fell 3.6% YoY while at the same time, Net Exports grew 12.1% YoY. Exports are growing 4x faster than net imports which caused the trade deficit to collapse.
Current Value compared to 1 month ago and 1 year ago | Trailing Twelve Month (TTM) Comparison | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Category | Oct 2025 | Sep 2025 | Oct 2024 | MoM % Change | YoY % Change | TTM Ending | TTM Ending | TTM Ending | TTM % Change | TTM % Change |
Export | ||||||||||
Goods | 195.9 | 188.8 | 170.9 | 3.8% | 14.6% | 2,179.7 | 2,072.9 | 2,049.0 | 5.2% | 6.4% |
Services | 106.1 | 105.4 | 98.6 | 0.7% | 7.7% | 1,221.4 | 1,132.7 | 1,034.2 | 7.8% | 18.1% |
Total | 302.0 | 294.2 | 269.5 | 2.6% | 12.1% | 3,401.1 | 3,205.6 | 3,083.2 | 6.1% | 10.3% |
Import | ||||||||||
Goods | -255.0 | -267.1 | -271.0 | -4.5% | -5.9% | -3,471.3 | -3,236.1 | -3,107.6 | 7.3% | 11.7% |
Services | -76.3 | -75.3 | -72.7 | 1.4% | 5.0% | -889.4 | -825.3 | -754.2 | 7.8% | 17.9% |
Total | -331.4 | -342.4 | -343.8 | -3.2% | -3.6% | -4,360.6 | -4,061.4 | -3,861.8 | 7.4% | 12.9% |
Net | ||||||||||
Goods | -59.1 | -78.3 | -100.1 | -24.5% | -40.9% | -1,291.5 | -1,163.2 | -1,058.6 | 11.0% | 22.0% |
Services | 29.8 | 30.2 | 25.8 | -1.2% | 15.3% | 332.0 | 307.4 | 280.0 | 8.0% | 18.6% |
Total | -29.4 | -48.1 | -74.2 | -39.0% | -60.5% | -959.5 | -855.8 | -778.6 | 12.1% | 23.2% |
Data as of: Oct 2025. Figures in Billions of $. | ||||||||||
Zooming out and focusing on the net numbers shows the longer-term trend. It really puts the current landscape into perspective. After a massive surge in the trade deficit from Jan to March, it has fully reversed to a level not seen since 2009.
Figure 2: Historical Net Trade Balance
The Services Surplus has also reversed and started to climb.
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 flattening of imports can really be seen in the bottom right corner of the chart.
Figure 4: Trailing 12 Months (TTM)
The TTM Net Trade Deficit fall has brought the deficit as a % of GDP to 3.09%. This has been a pretty stark reversal from the pop seen earlier in 2025.
Figure 5: TTM vs GDP
The chart below shows the YTD values. This is through October so it factors in both the surge and collapse in the trade deficit, which is netting out to be on trend for the year.
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. For years, foreign countries were willing to provide goods and services in exchange for USD that far exceeds what they are buying with the USD they earn.
The Tariffs resulted in a surge of imports followed by a significant drop in growth when compared to the trend. It is yet to be seen whether the drop in imports is temporary and just a result of the pull forward we saw in Jan-Mar, or whether the increased costs of imports is going to drive down the total. Regardless, one thing is for sure, foreigners are not paying for these imports.