The Tariffs did reduce the trade deficit, but that is probably not a good thing
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 February trade deficit came in at -$57B. While this deficit is about average compared to recent months, it is still historically smaller than what was being seen before Liberation Day and the tariffs set in. The data is only through February, which was the same month that the tariffs were struck down. This means the data shown here does not yet reflect the lifting of tariffs, nor the application of the temporary tariffs Trump put in place after the ruling.
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 7.1% YoY while at the same time, Net Exports grew 12.1% YoY. The Trailing Twelve Month (TTM) data shows that exports grew by 7.3% while Imports were essentially flat (driven by a fall in Goods Imports).
Current Value compared to 1 month ago and 1 year ago | Trailing Twelve Month (TTM) Comparison | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Category | Feb 2026 | Jan 2026 | Feb 2025 | MoM % Change | YoY % Change | TTM Ending | TTM Ending | TTM Ending | TTM % Change | TTM % Change |
Export | ||||||||||
Goods | 206.9 | 195.4 | 180.6 | 5.9% | 14.5% | 2,245.8 | 2,088.3 | 2,048.2 | 7.5% | 9.6% |
Services | 107.9 | 106.8 | 100.0 | 1.0% | 7.8% | 1,246.7 | 1,167.5 | 1,061.1 | 6.8% | 17.5% |
Total | 314.8 | 302.2 | 280.7 | 4.2% | 12.2% | 3,492.5 | 3,255.8 | 3,109.3 | 7.3% | 12.3% |
Import | ||||||||||
Goods | -291.5 | -277.5 | -327.4 | 5.0% | -11.0% | -3,351.0 | -3,421.0 | -3,107.5 | -2.0% | 7.8% |
Services | -80.6 | -79.4 | -73.1 | 1.6% | 10.3% | -917.1 | -852.9 | -771.6 | 7.5% | 18.9% |
Total | -372.1 | -356.9 | -400.4 | 4.3% | -7.1% | -4,268.1 | -4,273.9 | -3,879.1 | -0.1% | 10.0% |
Net | ||||||||||
Goods | -84.6 | -82.1 | -146.7 | 3.0% | -42.3% | -1,105.2 | -1,332.7 | -1,059.3 | -17.1% | 4.3% |
Services | 27.3 | 27.5 | 27.0 | -0.7% | 1.1% | 329.6 | 314.6 | 289.6 | 4.8% | 13.8% |
Total | -57.3 | -54.7 | -119.8 | 4.9% | -52.1% | -775.6 | -1,018.1 | -769.7 | -23.8% | 0.8% |
Data as of: Feb 2026. 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 last year as inventories were built up, it has fully reversed to pre-Covid levels.
Figure 2: Historical Net Trade Balance
The Services Surplus is flat and even trending down though. This indicates the deficit change is being driven by Goods and not Services.
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 while Exports continue to grow (top right corner).
Figure 4: Trailing 12 Months (TTM)
The TTM Net Trade Deficit fall has brought the deficit as a % of GDP to 2.47%. This is the lowest since the year 2000!
Figure 5: TTM vs GDP
The chart below shows the YTD values. This is through February so it shows the big surge in Imports that was happening last year in the inventory build-up.
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 have so far had the effect of shrinking the trade deficit as intended. The question is really: is that a good thing? Probably not. The world was willing to supply the US with cheap goods. Tariffs have made those goods more expensive which reduces overall demand.
While it is good to see US exports continue to rise, the artificial price increases will feed inflation and make it harder to buy things Americans want and need. It was good the Supreme Court struck down the Tariffs. Hopefully the new emergency tariffs will not go past 90 days.