Tariffs have failed to shrink the trade deficit as promised

The U.S. imported more goods and services than it exported in December, around $70 billion, according to an official count of the U.S. trade deficit released Thursday by the U.S. Bureau of Economic Analysis.

President Donald Trump repeatedly promised tariffs would bring that number down, but they have not.

Fran Dunaway, president of the apparel company TomboyX, said tariffs were so volatile for her company that it was paying 187% at one point this past year. She tried to order stock early to get ahead of the tariffs, but eventually had to import again. She moved production from country to country, getting the tariffs down to 40%.

“We paid more in tariffs than our operating loss, which means that tariffs were the difference between being profitable and not,” Dunaway said.

That’s not just for Dunaway’s business. Millions of supply chains lurched from tariff crisis to tariff crisis, dragging the trade deficit along for the ride, said Bradley Saunders, an economist with Capital Economics.

“If you look back at the start, you see tariff frontrunning,” he said. “Over the summer months, you have imports dropping back… And then if you look at the end of the year, you see sort of a normalization of trade.”

By the end of it all, not really much happened with the deficit. Erica York, vice president of federal tax policy at the Tax Foundation think tank, said 2025’s trade deficit was about the same as it was in 2024 — which was exactly what a lot of economists predicted.

“A tariff discourages imports,” York said. “That’s why some people mistakenly think, ‘Oh, we’ll use tariffs and we’ll shrink the trade deficit.’”

But that’s not how this Rube Goldberg machine of an economy works. Joe Gagnon, a senior fellow at the Peterson Institute for International Economics, said tariffs start a chain reaction.

“Tariffs, historically, tend to push a country’s currency up,” he said.

If tariffs make the U.S. import less, it uses less foreign currency. That makes those currencies weaker and the dollar stronger, Gagnon said, which makes U.S. exports harder.

“So imports shrink a bit and exports shrink a bit, and the balance doesn’t change,” he said.

Gagnon said that started to happen in the U.S., but then came a curveball, seemingly out of nowhere — foreign investors.

“Investors around the world thinking, ‘Do I really want to send my money to America?’” he said.

That pulled down the value of the dollar, which helps U.S. exports. That would have lowered the trade deficit, despite the tariffs.

If that’s not complicated enough, there’s the AI boom, said Brad Setser, senior fellow and economist with the Council on Foreign Relations.

“You also are seeing a big increase in imports of computers, of servers,” he said.

And so far, that’s why there’s pretty much no change in the tally for the trade deficit for 2025.