To President Trump, one economic number represents everything that is wrong with the global economy: America’s trade deficit.
That deficit is the total value of what the United States imports from other nations, minus its exports to other countries. The fact that America runs a trade deficit reflects how the nation’s appetite for foreign goods now far outpaces what U.S. factories and farms send abroad.
Official data released on Wednesday morning showed that the U.S. trade deficit widened to nearly $1.2 trillion in 2024, a record.
For Mr. Trump, the fact that the United States imports more goods than it exports is a sign of economic weakness and evidence that the world is taking advantage of America. While the country’s trade deficit has been widening for years, that gap could end up being a key reason Mr. Trump decides to impose tariffs on Europe, China, Canada, Mexico and other governments.
Mr. Trump rolled out a dramatic series of trade actions against Canada, Mexico and China in recent days, signing executive orders to put tariffs on all three nations in what he said was an effort to stem the flow of drugs and migrants to the United States.
But he also cited the trade deficit as he talked about tariffs writ large, making clear that the gap between what America sells and what it buys remains top of mind for Mr. Trump.
“They have to balance out their trade, number one,” the president said on Sunday when asked what Canada and Mexico needed to do to have their tariffs lifted. “We have deficits with almost every country — not every country, but almost — and we’re going to change it.”
He also suggested that he might impose tariffs on the European Union, saying the bloc was an “atrocity” on trade.
Mr. Trump’s advisers have been laying the groundwork for trade actions related to the trade deficit. In an executive order laying out the administration’s trade priorities, the first item was investigating “the causes of our country’s large and persistent annual trade deficits in goods.”
Mr. Trump is already considering a plan to narrow the trade deficit: imposing a universal tariff that would tax all imports when they came into the United States. The president’s view is straightforward: He believes the tariff would discourage Americans from buying foreign goods. He and his advisers also argue that this would help to stop foreigners from buying up U.S. assets with the money that American consumers pay them, something the administration sees as problematic.
In an interview on Tuesday, Peter Navarro, the president’s senior counselor for trade and manufacturing, said U.S. trade policy had resulted in an economy in which millions of jobs had been lost, factories had been shuttered and the annual trade deficit ballooned to $1 trillion.
“We, the United States of America, as President Trump says as often as he can, is the world’s sucker,” Mr. Navarro said.
While Mr. Trump’s concerns about America’s trade deficit were largely dismissed during his first term, more economists and policymakers have since come to view big global imbalances as problematic. That shift stems in part from rising concerns about China, which is producing an ever greater share of the world’s goods.
Still, Mr. Trump’s belief that tariffs will narrow the trade deficit is not universally accepted. Some economists contend that tariffs would have little effect on the trade deficit, because they would be offset by changes in the value of the currency and interest rates. They say tariffs would be harmful in other ways, by raising costs for households and manufacturers. They also maintain that much of the U.S. trade deficit is tied to fiscal deficits, and that Mr. Trump’s plans to cut taxes could end up inflating it.
The debate stems from the fact that many forces can affect the trade deficit beyond the flow of goods — including the value of the dollar and its role as the world’s most widely used currency, as well as saving and investment. When a good moves across a border, money must move in the opposite direction to pay for the purchase. Those financial flows can determine trade by giving Americans more, or less, money to spend on foreign goods.
The trade deficit is now significantly larger than it was when Mr. Trump first came into office. It has fluctuated in some years but has generally trended upward since then.
Economic data shows that the tariffs Mr. Trump imposed in his first term on Chinese products did reduce U.S. imports directly from China. But in the following years, U.S. trade deficits with Mexico and Vietnam grew, a sign that American consumers had simply started buying more goods from those countries and fewer from China.
Stephen Miran, Mr. Trump’s pick to head the Council of Economic Advisers, has argued that tariffs could help to offset big macroeconomic imbalances, while also creating a source of revenue and leverage in negotiations.
Some economists say this will not work. Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and the former chief economist at the International Monetary Fund, argued that tariffs would have “an ambiguous effect” on the trade deficit, in part because they would strengthen the U.S. dollar. When the currency appreciates, that makes imports seem cheaper and exports more expensive, pushing up the trade deficit.
Tariffs can also make it more expensive for American factories to import raw materials and parts they need, and therefore can increase the trade deficit by hurting U.S. exporters, he argued.
“There’s a whole range of macroeconomic reactions that would tend to undermine the simple intuition of how tariffs affect the balance of trade,” Mr. Obstfeld said.
Other economists believe that Trump officials have identified the correct problem — but are not confident that they will choose the best solutions.
Michael Pettis, a professor of finance at Peking University, said there was a growing recognition that the extreme imbalances that the world was experiencing might be harmful for American workers. But Mr. Pettis believes that instead of applying tariffs, the United States should form a coalition of countries to pressure China to change its trade behaviors, or impose a tax on foreign capital coming into the United States, which could weaken the dollar and push down the trade deficit.
Mr. Pettis sees the growing U.S. trade deficit as intrinsically tied with a trade surplus that is ballooning on the other side of the planet, as China continues to sell far more products to the rest of the world than it buys. China announced in January that its trade surplus reached almost $1 trillion last year, far exceeding that of any country in the past century.
The United States has tried to support firms making solar panels, computer chips and other strategic products against this flood of products by offering generous subsidies, but some companies have still struggled to survive. Trade data released on Wednesday showed a significant drop in U.S. automotive exports to the rest of the world, as the industry faces stiff competition from China.
“That’s not sustainable, and at some point you’ll see retaliation,” Mr. Pettis said. “That’s the world we’re living in now, a world in which countries are increasingly unwilling to absorb deficits.”
Jeanna Smialek contributed reporting.
