rewrite this title What Is the U.S. Trade Deficit and Why Is Trump Focused On It? – NerdWallet

A trade deficit means that a country imports more goods and services, by dollar value, than it exports. It can also refer to a specific imbalance between two trading partners. It’s the opposite of a trade surplus, which happens when exports exceed imports.

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The U.S. has run a trade deficit for decades. For 2024, the goods and services deficit was $918.4 billion, an increase of $133.5 billion from $784.9 billion the previous year, Bureau of Economic Analysis (BEA) data shows. The most recent data shows that the U.S. trade deficit was $122.7 billion for the month of February, according to a report released on April 3 by the U.S. Census Bureau and the BEA.

President Donald Trump is a decades-long critic of the U.S. trade deficit, charging that it is the result of foreign trade policy that enables “cheating” or taking advantage of the U.S. by other countries. Thus, Trump wants to reverse the U.S. trade deficit by increasing tariffs, which are essentially a tax on imports from foreign countries.

On April 2 — the day that Trump announced widespread “reciprocal” tariffs on trade partners — the president declared that foreign trade and economic practices have created a national emergency. A fact sheet from the White House said “Large and persistent annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base; resulted in a lack of incentive to increase advanced domestic manufacturing capacity; undermined critical supply chains; and rendered our defense-industrial base dependent on foreign adversaries.”

The fact sheet also said that Trump’s tariffs would be in effect until the president “determines that the threat posed by the trade deficit” resolves. He says that tariffs will compel consumers to buy more domestic-made products and boost the manufacturing industry in the U.S.

Trump’s tariff actions have sparked a trade war and while it will raise the cost of importing to the U.S., it’s also likely to increase prices by increasing costs for businesses that rely on imported goods and raw materials, who will then pass on higher costs to consumers. Retaliatory tariffs by trade partners could also negatively impact U.S. manufacturers that rely on exports.

Many economists say that the president’s focus on reducing bilateral trade deficits — that is, taking a country-by-country approach to the deficit — demonstrates a fundamental misunderstanding of how today’s complex global trade and supply chains function.

In addition, economists say the trade deficit has little to do with the strength or state of the economy. For example, the deficit has been in place for decades, but that hasn’t hindered U.S. growth on an annual basis.

A trade deficit simply means that the U.S. consumes more goods than they sell to all other countries. The U.S. has a consumption-based economy. Imported goods are often cheaper for U.S. consumers and, by diversifying the sources of goods, businesses can offer more variety of goods to U.S. consumers.

Accessing more imported consumer goods doesn’t diminish the U.S.’s role as a producer and exporter. In fact, the U.S. remains the second-largest goods exporter in the world.

The U.S. is also the largest services exporter in the world. The U.S. also runs a surplus of services, which include financial services, digital content, intellectual property, education and tourism and media licensing. The services surplus helps offset the goods deficit.

Economists say that trade deficits aren’t necessarily harmful, so long as they is offset by foreign investment in the U.S. economy.

The trade balance is the difference between the value of a country’s exports and imports.

The U.S. runs a goods deficit and a surplus of services. In February, compared to the previous month, the goods deficit was $147 billion (-$8.8 billion) and the services surplus was $24.3 billion (-$800 million). As mentioned above, the services surplus offsets some of the goods deficit and the remainder is the trade balance.

But trade balances play out differently when measured on a partner-by-partner basis. Here are the trade partners that the U.S. has goods surpluses and deficits with, according to the most recent data for February 2025, released on April 3 by the Census and the BEA:

Trump has imposed high tariffs on several of the nation’s key trading partners, including those with whom we run trade deficits, such as 145% on Chinese-made goods and 25% on a variety of products from Mexico and Canada.

Retaliatory tariffs threaten to disrupt U.S. trade balances even further. If services are targeted for tariffs, it could hurt the U.S. services surplus, which is important to offsetting the U.S. trade deficit.

Trump has claimed that deficits with foreign countries have contributed directly to the national debt, but that’s not exactly correct.

A trade deficit doesn’t directly affect the national debt, which is the total the government has borrowed from the American public, foreign governments and securities holders, but has not repaid. However, trade deficits can influence foreign investment, which can finance budget deficits.

A trade deficit doesn’t carry the same economic implications as a budget deficit. The latter is a direct contributor to the national debt, which currently stands at $36.2 trillion, according to the U.S. Treasury Department.

A budget deficit means the nation spends more than it brings in through taxes, so it borrows to make up the difference. Borrowing funds government operations and pays interest on the existing national debt.

When the U.S. runs a trade deficit, it means dollars are flowing out of the U.S. and into foreign countries. In turn, foreign investors — like central banks or other governments — often reinvest money into the U.S. Treasury securities, which helps finance the budget deficit. And in turn, the budget deficit adds to the national debt.