The U.S. Trade Deficit (And Why Trump Cares)

Earlier this week, we published an article about how president Trump intends to place a number of trade tariffs against countries around the world.

Now, we wanted to look at the reasoning behind this logic.

In reality, its quite straight forward. Trump's priority is to reduce U.S. reliance on foreign actors and revitalize U.S. manufacturing which, for years, was the backbone of the country's economy.

Ever since the turn of the millenium, the U.S. economy began a transition that made it ever more reliant on foreign economies to meet internal demand. Such an argument is backed by data. Over the last 25 years, the U.S. trade deficit has grown drastically. In 1999, the U.S. ran a deficit of $259.5 bn—meaning, it imported $259.5 bn worth of goods more than it exported. By 2023, the deficit had grown to $971.1 bn.

Something similar happens when looking at the top trade partners of the U.S. In the graph below, we plotted the trade deficit held by the U.S. with its 15 largest trade patterns and the rest of the world. For context, these 15 countries alone account for over 78% of all imports and 73% of all commerce performed by the U.S. As the graph shows, the U.S. runs deficits with 14 of its 15 largest trade partners. China, and Mexico are on top of the path, with a shared trade imbalance that accounts for 40.6% of the total deficit of the U.S.—no surprise that president Trump has argued for specific tariffs to both countries.

Trump’s trade agenda is driven by a desire to reverse this trend through tariffs, with particular focus on countries with whom the U.S. has significant trade imbalances, such as China and Mexico, which together represent 40.6% of the total U.S. trade deficit.

The problem is that tariffs often function as a tax on U.S. consumers. When tariffs are applied, companies raise prices to offset costs, burdening consumers with higher prices for imported goods. For instance, tariffs from Trump’s first term were estimated to have cost the average American household an additional $831. Trump’s proposal to apply a 10% blanket tariff on all imports, with higher rates for specific countries, could create price distortions totaling $592.74 billion.

While these tariffs are intended to reduce the trade deficit and protect domestic industries, the immediate impact on the U.S. economy would likely target consumer purchasing power.

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