:max_bytes(150000):strip_icc()/GettyImages-2216153772-151e043e672047049dc59760b95dad9c.jpg "Is the Shrinking Trade Deficit About to Give GDP a Lift?")
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Key Takeaways
- The U.S. trade deficit shrank by 24% in August, according to a delayed report released Wednesday.
- The improvement in the trade deficit is expected to boost economic growth, according to forecasts.
The U.S. trade deficit fell sharply in August as newly released information showed imports are declining in the wake of President Donald Trump’s wide-ranging tariff policies.
The trade deficit fell by nearly 24% in August, according to Bureau of Economic Analysis data. The delayed report showed the difference between imports and exports narrowed by $18.6 billion to a total of $59.6 billion.
Why This Matters for the Economy
A narrowing of the trade deficit can indicate an improvement in overall economic conditions, affecting everything from the level of prices paid at the store to job availability.
The Trump administration introduced a series of new tariffs that month, and imports declined by more than 5% from the July reading, while exports increased slightly.
The August trade data, which had been delayed due to the government shutdown, follows a July reading that showed the trade deficit increased on higher imports ahead of the August tariff deadline.
Trade Data Could Indicate Stronger GDP
An improvement in the trade deficit could lead to a better result for the third-quarter gross domestic product. In fact, the Atlanta Federal Reserve has already updated its GDPNow projection tool to reflect the change in exports, moving its third-quarter GDP forecast up a tick to 4.2%.
The trade deficit has already contributed to the seesawing GDP readings this year. After Trump announced his initial tariff plans, many buyers rushed to beat the import taxes, sending the trade deficit higher in the first quarter and consequently leading to a 0.6% contraction in economic growth to start the year. However, as imports declined due to higher tariffs, GDP increased, reaching 3.8% in the second quarter.
And while the trade deficit narrowed in August, there’s still a way to go to make up for the import surge from earlier this year. Year-to-date through August, the U.S. trade deficit is at $142.5 billion, higher by 25% over the same period in 2024.
Imports from Switzerland, Canada Fall Amid High Tariff Rates
The data also showed the trade deficit narrowing with nations where the Trump administration has levied higher tariffs. Canada, which faces a 35% tariff for products not covered by the USMCA trade agreement, has seen its imports to the U.S. fall by $1.7 billion. U.S. exports to Canada increased, helping to shrink the trade deficit with that country to $3 billion.
Meanwhile, Swiss imports to the U.S. cratered by $6.8 billion in August after Trump hit the watch- and chocolate-making nation with 39% tariffs. Those tariffs were recently reduced to 15% after negotiations between the two sides.
