US trade deficit hit a record high in January, Trump tariffs played a role

The US trade deficit reached a record high of $131.4 billion in January 2024, rising by 34 per cent from December’s revised figure of $98.1 billion, according to the Commerce Department’s Bureau of Economic Analysis (BEA). Though Donald Trump inaugurated his second term as the US president on January 20, his promised tariff and trade policies influenced import surge even in the early weeks of the month.

This sharp increase—the largest percentage jump since March 2015—has reignited concerns over the impact of trade policies on economic growth. The trade deficit, which measures the gap between a country’s imports and exports, has been a focal point of economic debates.

While US President Donald Trump often criticised the deficit as a sign of economic weakness, the latest figures indicate that his trade policies, particularly tariffs, have significantly influenced the current trade scenario.

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The tariff effect

A primary driver of the record trade deficit is the sharp rise in imports. In January, imports increased by 10 per cent to $401.2 billion, with goods imports reaching an all-time high of $329.5 billion—a 12.3 per cent jump. This surge was largely due to businesses accelerating imports ahead of tariffs imposed under Trump’s trade policies. The largest increase came from industrial supplies and materials, especially gold, which rose by $23.1 billion. Consumer goods imports also increased by $6 billion, driven by demand for pharmaceuticals, cell phones and household items. Additionally, imports of capital goods, such as computers and telecommunications equipment, further widened the trade gap.

According to Reuters, Goldman Sachs analysts highlighted that fears of potential tariffs on gold contributed to the spike in gold imports, underscoring how protectionist policies can yield unintended consequences. Meanwhile, the Atlanta Federal Reserve has projected a 2.8 per cent annualised decline in GDP for the first quarter, partly attributing it to the widening trade deficit.

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Exports see modest growth

While imports surged, exports grew only marginally—by 1.2 per cent—to reach $269.8 billion. Goods exports increased by 1.6 per cent, driven by a $4.2 billion rise in capital goods, including civilian aircraft and semiconductors. Consumer goods exports also rose by $1.7 billion, mainly due to increased sales of pharmaceuticals and jewellery. However, food exports declined, with soybean exports dropping by $1 billion, partially offsetting these gains. Additionally, government goods and services exports fell by $0.3 billion, indicating potential weaknesses in key sectors.

Despite Trump’s assertions that tariffs would reduce the trade deficit by boosting domestic manufacturing, the data suggests otherwise. Rob Wile of NBC News pointed out that while Trump focused on reducing the deficit, most economists argue that trade imbalances are not inherently harmful. Instead, they often reflect strong domestic consumption—typically a sign of a healthy economy.

Protectionism or economic miscalculation?

Trump’s trade policies have relied heavily on aggressive tariffs, particularly targeting China, Mexico and Canada. In January, tariffs on Chinese goods were doubled to 20 per cent, while a new 25 per cent tariff was introduced on imports from Mexico and Canada. These measures, intended to correct trade imbalances, have primarily resulted in higher costs for US businesses and consumers.

Fox Business’s Breck Dumas reported that America’s goods deficit with the world hit a record $1.2 trillion in 2024, with December alone seeing an all-time high of $364.9 billion in imports. Despite Trump’s efforts, his tariffs have led to retaliatory actions from other nations, exacerbating trade imbalances rather than resolving them.

Beyond economic reasons, Trump has also leveraged tariffs for political messaging, linking trade policies with issues like illegal immigration and drug trafficking, particularly fentanyl. Time’s Rebecca Schneid noted that Trump framed tariffs on Canada and Mexico as protective measures for American citizens. However, economists warn that these tariffs could increase prices for essential goods like groceries, fuel and automobiles.

Do trade deficits really matter?

The debate over trade deficits has long divided economists and policymakers. Trump frequently cited historical figures like William McKinley—who implemented high tariffs in the late 19th century—as justification for his trade policies. However, as NBC News’ Wile pointed out, McKinley later shifted toward reciprocal trade agreements after recognising the potential economic drawbacks of protectionist measures.

Economists, including Vance Ginn, who advised Trump during his first term, argue that trade deficits are not inherently detrimental. Ginn explained that a large trade deficit often signals robust domestic demand and economic prosperity rather than weakness. Similarly, the Congressional Research Service noted in 2018 that Trump’s focus on reducing the deficit contradicts mainstream economic thinking.

On the other hand, left-leaning economists like Robert Scott from the Economic Policy Institute argue that trade imbalances have historically contributed to job losses in manufacturing. In 1998, Scott testified before the US Senate that trade deficits—particularly those linked to the North American Free Trade Agreement (NAFTA)—led to the loss of over 2 million manufacturing jobs between 1979 and 1994. Ironically, Trump’s tariffs, which aimed to address these concerns, may be harming the very industries they were intended to protect.

Contradictions in Trump’s economic approach

Trump’s economic policies reveal inconsistencies. The Wall Street Journal editorial board noted that while Trump supports tariffs, he also advocates for a weaker dollar to boost exports. However, tariffs tend to raise prices, making US goods less competitive in global markets. The board argued that Trump’s messaging on currency policy lacks clarity and that stabilising the dollar should be a higher priority.

Additionally, Trump’s recent tariffs contradict his own trade agreements. In 2018, he renegotiated NAFTA into the United States-Mexico-Canada Agreement (USMCA) to foster stable trade relations. However, his latest tariffs on Canadian and Mexican goods undermine this agreement, creating uncertainty for businesses that rely on USMCA regulations.

Growing signs of a recession?

Financial analyst Jesse Colombo warns that the US economy may already be in a downturn with key recession indicators flashing red. The Atlanta Fed’s GDPNow model saw a sharp drop, forecasting a -2.8 per cent contraction for Q1 2025. Declining consumer spending and a housing slump are major contributors.

Market signals, including an inverted yield curve and the New York Fed’s Recession Probability Model, reinforce recession fears. The Federal Reserve’s aggressive rate hikes from near zero to 5.3%—before easing to 4.3 per cent—mirror past tightening cycles that led to economic crises.

Further uncertainty looms over potential Trump-era tariffs, which could add pressure by increasing business and consumer costs.

Economic implications and policy considerations

Trump’s tariffs have reshaped trade patterns but have not reduced the deficit as intended. Instead, they have driven up imports, provoked retaliatory actions from trading partners, and increased costs for American consumers.

The record trade deficit in January 2024 highlights the complexity of global commerce and the challenge of balancing protectionist policies with economic realities. While Trump’s trade measures aimed to boost domestic manufacturing and reduce trade imbalances, the data suggests they may have had the opposite effect—reinforcing the very challenges they sought to address.