The US trade deficit widened in December as businesses tried to get ahead of President Donald Trump’s threatened tariffs.
Wednesday’s data from the US Census Bureau and the US Bureau of Economic Analysis showed a trade deficit of $98.4 billion, up 17 percent over the previous year. Imports hit an all-time high of $364.9 billion and the deficit numbers jumped nearly 25 percent in December as consumers rushed to import goods following Trump’s election.
The gap between imports and exports has grown steadily for nearly fifty years as American consumers’ purchasing power rose. Most economist believe that a trade imbalance is not in and of itself a bad sign for the economy, but Trump has made eliminating the trade deficit “to zero” through punishing tariffs against American trade allies a key promise of his presidency. December’s numbers show a new chapter in the trade gap story. Following the Republican president’s declarations to levy 10, 25, or even 2000 percent tariffs on foreign imports, companies tried to beat the clock to save money in the year to come.
“It’s a strong case that some firms were trying to front-run the threat of tariffs by boosting imports where they could very quickly late last year,” said Ken Matheny, Director of Macroeconomics at the Yale Budget Lab.
Trump’s economic aim is to lower the trade gap through 10 percent tariffs of China, proposed 25 percent tariffs on Canada and Mexico, and threats of tariffs on European Union countries. However, these taxes on imports have, at least in the months of November and December, caused the total value of imports coming in from abroad to soar as US businesses attempt to stock up in anticipation of tariffs. Economists warn that increased tariffs will cost American companies and thus American consumers in the months to come.
Trump initially told voters that his tariffs wouldn’t raise prices, but seemed to accept the possibility last week, writing on Truth Social, “WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!).”
Economic experts almost uniformly find that the lion’s share of tariffs are passed through to the end purchaser, in this case, the American consumer. According to Yale Budget Lab, Trump’s latest 10% tariffs on China, out this week, will cost American’s an average of $223. Further prospective taxes on imported goods outlined by the president could set back the average American household another $1,000.
“Let’s call it tariff for what it is, it’s a tax,” said Matheny. In that sense it’s no surprise that US companies are trying to react quickly to stock up on foreign imports with a global trade war on the horizon.
For now, it isn’t clear how consumers or trading partners will respond to Trump’s policies. But the key word, as Matheny observed, is “uncertainty.”
“As we saw in the last 48 hours, there’s lots of reasons for that uncertainty,” said Professor Patrick Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri, noting the back and forth between the Republican president and US trading allies over taxes on imported products.
While Trump claims that the US is “subsidizing” other countries’ economies through the trade deficit, our gap between imports and exports is a sign of a relatively healthy US economy, especially compared to many of our trading partners. Westoff explained. For example, while countries like Japan and Germany may both have trade surpluses, meaning they export more than they import, they suffer from a weak currency and slow economic growth respectively–and neither of the countries would be described as more powerful economically than the United States.
Though the difference between December’s imports and exports, including services, did not surpass the $1 trillion number that some experts anticipated, the total trade balance for the year nearly topped the nation’s 2022 high. And looking solely at trade in physical goods, the trade deficit set a record.
The surge in foreign goods was mostly led by an increase in demand for industrial supplies. Between November and December, ready-for-use metal used for manufacturing jumped 200 percent, non-monetary gold, which is used in industrial processes and medical devices, increased nearly 50 percent, fertilizers, pesticides, and insecticides increased by 20 percent. Imports of sugar grew by over 70 percent month to month. Meanwhile, consumer goods ticked up by only 3 percent.
Considering that Trump’s tariffs had not yet gone into effect as of 2024, January’s numbers out next month could paint an even more complete picture of business and possible consumer front-loading. The phenomenon is somewhat similar to people scrambling to buy toilet paper at the start of the Covid-19 pandemic on a mega-scale. Just as consumer spending in lockdown “didn’t happen on day one,” said Matheny, it’s possible that the trade deficit will continue to grow well into early 2025.
From December’s numbers, it’s not clear whether individual consumers will also begin stocking up on goods from overseas to get ahead of tariffs but that could change if individuals were made more aware that Trump’s duties would affect their wallets.
