TRADE WARSThe U.S. Trade Deficit: How Much Does It Matter?
President Trump has made reducing U.S. trade deficits a priority, but economists disagree over how much they matter and what to do about them.
President Donald Trump has made reducing U.S. trade deficits, which have expanded significantly in recent decades, a priority of his administration. He and his advisors argue that renegotiating trade deals, promoting “America First” policies, and confronting China and the rest of the world over what they see as economic distortions will shrink trade deficits, create jobs, strengthen national security, and restore the “golden age of America.”
Many economists and trade experts do not believe that trade deficits hurt the economy and warn against trying to “win” the trade relationship with particular countries. Others, however, believe that sustained trade deficits can be a problem. There is substantial debate over what policies, if any, should be pursued to reduce them.
What Is a Trade Deficit?
A trade deficit occurs when a nation imports more than it exports. For instance, in 2024 the United States exported nearly $3.2 trillion in goods and services to the world, while it imported $4.1 trillion, leaving an overall trade deficit of more than $900 billion. The deficit in goods, at $1.2 trillion, is higher than the total deficit, since a portion of the goods deficit is offset by the surplus in services trade. Services, such as tourism, intellectual property, and finance, make up roughly one-third of exports, while major goods exported include aircraft, refined petroleum and other fuels, and transportation equipment. Meanwhile, imports are dominated by capital goods, such as computers and telecom equipment; consumer goods, such as apparel, electronic devices, and automobiles; and crude oil.
It is important to differentiate a country’s overall, or global, trade deficit from its bilateral trade deficits. The United States has both a large overall deficit in its trade with the rest of the world and substantial bilateral deficits with a number of individual countries. But it is possible for a country to have bilateral deficits with certain countries, surpluses with others, and balance in its overall trade with the world. In other words, even if the United States were to “fix” its overall trade deficit, it could—and likely would—have bilateral deficits with some countries. (One way to think about this is to consider the financial situation of individual consumers, who could spend no more overall than they earn but still have “bilateral deficits” with their grocer or barber and a “bilateral surplus” with their employer.)
