One day after President Trump’s tariff announcements sent markets tumbling, international trade data reflected an economy grappling with uncertainty, as companies struggled to predict what might come next.
The trade deficit declined 6.1% to $122.7 billion in February, down from its record-breaking $130 billion gap the month prior, the U.S. Census Bureau reported Thursday. Imports dipped slightly as Trump’s tariffs threats became reality on Chinese goods and businesses braced for what was to come. Exports increased slightly to key trading partners, in anticipation of retaliatory tariffs.
Looking back, in the first week of February companies were rocked by foreign policy shakeups as Trump imposed 10% tariffs on Chinese imports — since dwarfed by much larger duties — while suspending his 25% tariffs on Mexican and Canadian neighbors. The trade numbers out on Thursday show hesitation and disruption in global commerce as businesses reacted to Trump’s first moves.
Since the February data was collected, the president has announced plans to slap a minimum tariff of 10% on nearly all imported goods entering the country. If that policy had been more clear before the day-of, perhaps companies and consumers would have spent February stocking up even more than the numbers out Friday show.
As a business owner, Shawn Shea feels lucky to have the gift of foresight. Shea, who owns a sawmill in Western Iowa, changed the way he runs his small woodworking business in December to minimize his exposure to Donald Trump’s looming tariffs. He sold off expensive equipment and adjusted his supply chain and market to be more hyper-local than ever before. “I made that decision sometime when, when Trump first started talking about the tariffs, then he got elected, and I knew it would affect the industry,” said Shea.
The past several months of international trade numbers show that Shea is not alone in his plans, as many US-based businesses continued front-running foreign imports and shifted away from certain countries they thought would be targeted by the levies. But it’s been a guessing game for American companies, as reflected in the somewhat disjointed data from February.
Following levies on Chinese imports initially announced Feb 4, the Chinese trade deficit with the US fell by $3 billion or 4.5% in February, continuing a downward trend. Imports of goods from Canada also decreased 3.5%, despite tariffs not being put in place after warnings that trade with the northern neighbor might be contentious going forward.
Interestingly, imports from Mexico grew, as US businesses attempted to get ahead of tariffs. Mexico is a major partner for the United States in cars and vehicle parts, agricultural products, and electronics. Automobile imports were up nearly $1 billion month-to-month, meaning either Americans are suddenly driving more, or consumers listened to Trump when he teased tariffs on cars in February.
Similarly, as Trump threatened semiconductors and pharmaceuticals, imports from Taiwan and Ireland increased respectively over the months. The two countries saw an increase in goods flowing into the US the month prior too, but this increase in trade could be short-lived with duties around the corner. “It looks like there’s some front-running, especially in computers and pharmaceuticals,” said Ken Matheny, Director of Macroeconomic for the Yale Budget Lab, “but we need to be careful about how we interpret the data.”
Economists are cautious to draw overly broad conclusions after January’s puzzling trade deficit figures were skewed by an unusual surge in gold imports.“Last month it turned out that a large chunk of the surge in imports in January reflected gold bars imported primarily from Switzerland into New York,” said Matheny, which accounted for nearly 60% of the month’s increase in goods imports. Thus eye-catching headlines about the record-breaking trade deficit were lined with gold–or at least a bit overplayed. However, the surge in gold imports still signaled real concerns about tariffs and the broader American economy.
Following the bad day on Wall Street, Trump could use the news that the deficit shrunk ever so slightly in the month of February to his advantage in an attempt to prove that his trade policy is working to close the trade gap, which he has made central to his economic plans.
But even if imports continue to fall and exports miraculously continue to rise, economists are widely concerned about the effects of Trump’s tariff policy. “Higher tariffs will likely cause inflation in 2025 to be 2-3% higher than it would have been without the tariffs, and inflation in 2026 to be 1-2% higher than it would have been otherwise,” wrote Bill Adams, Chief Economist of Comerica, a financial services company based in Dallas, Texas.
The Yale Budget Lab also estimates that the price level from compounding tariffs will cause a 2.3% increase in prices in the short-term, resulting in an average per household consumer loss of $3,800.
Economic readers will have to wait another two months before they see the true impact of April’s “Liberation Day,” from the Census Bureau but everyday consumers and business owners are already making sacrifices to get ahead of whatever trade policy throws at them in addition to planning for a possible recession.
For Shea, that looked like winding down an aspect of his business this March by selling a large piece of logging equipment to a friend who had a big job on the horizon. Two days after Shea sold the skidder and cashed the check, the buyer called back to say he’d taken a 25% pay cut for the job. “I’m able to move my business model into a place where the tariffs can actually help me,” said Shea. “But that isn’t what’s happening in this industry, 95% of people who are logging for a living don’t have any kind of immediate capability to adapt to what the markets do.” And neither can most American workers.
