FACT: The U.S. trade deficit has nearly doubled this year.

THE NUMBERS: U.S. trade deficit (goods and services combined) –

Quarter/year	In dollars*	vs. GDP**
First quarter 2025:	$394 billion	4.2%
Fourth quarter 2024:	$250 billion	3.2%
Third quarter 2024:	$236 billion	3.1%
Second quarter 2024:	$223 billion	3.1%
First quarter 2024:	$205 billion	3.1%

 

* Census, May 2025 FT-900 release
** BEA, advance GDP estimate for the first quarter of 2025

WHAT THEY MEAN:

In an exchange with Rep. Brendan Boyle (D-Pa.) at an April House Ways and Means Committee hearing (2:20:43), U.S. Trade Representative Jamieson Greer defines “success” for the Trump administration’s tariff decrees as follows:

“The deficit [i.e. trade balance] needs to go in the right direction. Manufacturing as a share of GDP needs to go in the right direction.” 

Economics and daily life offer lots of reasons to object to this.  “Manufacturing as a share of GDP,” for example, would fall during a factory boom if (say) homebuilding, digital tech firms, and retail sales grew even faster. Likewise, in a recession, the manufacturing share of GDP could rise even if Americans made many fewer cars, dental drills, harvesters, semiconductor chips, etc., so long as housing and finance crashed harder.  Trade balances, meanwhile, can provide insights on the economy, but their relationship to economic trends is often perverse: deficits tend to rise during good years and fall in recessions. And most people likely see a lower cost of living, strong growth, and job opportunities as the main indications of successful policy, whether in trade specifically or economics in general.

But shelving these high-minded arguments for a minute, how do Ambassador Greer’s two indexes look so far?

We don’t yet know about the “manufacturing share of GDP” and won’t for a while. The Bureau of Economic Analysis does these estimates every three months. Their first 2025 “GDP by Industry” release doesn’t come out until June 26th, and it covers January to March; the first data for trends since the April 2 won’t be out until late September. For the trade balance, though, the initial numbers are drifting in, and they’re pretty unappealing.

Trade-balance numbers originate in data on cargo manifests, pipeline computers, air cargo package arrivals, etc. Customs and Border Protection officers dutifully convey them to Census statisticians who collate and analyze the raw data, add in estimates of service flows, and publish the numbers every month.  Their most recent release — last Thursday’s “FT-900”, covering trade flows in March — suggests that the prospect of rising tariff rates, then the February/March tariff decrees, and the prospect of more in April, induced a rapid and massive deficit spike.

This release reports an overall U.S. March ‘trade deficit’ of $140.5 billion (for goods and services combined) — nearly double the $78.7 billion deficit of October 2024, and more than double the $68.5 billion in March 2024.  Some monthly comparisons across “sectors”:

	March 2024	October 2024	March 2025	Change 3/24-3/25
All goods and services trade	-$68.5 billion	-$73.7 billion	-$140.5 billion	+105%
All goods trade	-$93.5 billion	-$98.8 billion	-$163.5 billion	+65%
Manufacturing trade only	-$84.8 billion	-$118.8 billion	-$151.5 billion	+79%
Agricultural trade only	-$3.0 billion	-$2.5 billion	-$4.6 billion	+53%

Alternatively, the broader goods-and-services figures drawn from BEA’s GDP estimates (and still subject to some revision) show quarterly “deficits” in a $200 to $250 billion range last year, or just under 3% of GDP. The first quarter of 2025 brought a sudden escalation to nearly $400 billion, or 4.2% of GDP. This is the highest GDP ratio BEA has found in 17 years, since the pre-crisis autumn of 2008.

The obvious questions: Why is this happening? How much credit do the administration’s tariff decrees get for it?  Is the spike permanent? And if it is, what would the administration then do?   A few thoughts:

1. Why? “Trade balance” is not an independent thing, but an arithmetical calculation: exports minus imports. The January-March deficit spike is entirely because the ‘import’ side of this calculation got a lot bigger while exports stayed about the same.  The likely cause is that over these months, U.S.-based manufacturers, farmers, and construction firms were stockpiling as much metal, tools, fertilizer, paint, wiring, semiconductor chips, and other inputs as they could to save money before tariffs raised their costs, and retailers were doing the same for spring and summer inventory. So in an immediate sense, the Trump administration’s tariff decrees pretty certainly caused the spike.

2. Is it permanent? Census’ next report will likely still show some import-booming, but over the summer, imports will probably drop back. So all else equal, the deficit would be smaller later in the year.  But by then two new factors will probably come into play, one pushing deficits down and the other pushing them up. They are:

(a) A recession would cut trade deficits: If the U.S. is in recession by July, Americans will buy fewer cars, houses, and consumer goods. Factory slowdowns and canceled construction projects will likewise cut imports of industrial goods.  As in past recessions — 1991, 2001, 2008 — trade deficits would then likely drop. The administration might take solace in that, though the public probably wouldn’t.

(b) Deteriorating savings/investment balance will raise them: Meanwhile, though, the Trump administration’s domestic goals, if met, will lead to higher long-term trade deficits.  The fundamental nature of trade balances is not ‘the incremental results of trade policy here and abroad’, in which balances by country are separate and unconnected data points.  Rather, the trade balance is a core GDP ‘identity’: whether surplus or deficit, it will always equal any gap between national savings and national investment.  If Congress’ potential tax cut is larger than the administration’s tariff increases, government “dissaving” — i.e. the fiscal deficit — will rise. Unless this is offset by some unexpected surge in family savings, or a collapse in business investment, the trade deficit will then grow rather than shrink. This is exactly what happened after the first Trump term’s combination of tariffs on steel, aluminum, and most Chinese-made goods with an income tax cut.

3. And so? The early data look awkward for the trade-balance measurement of success the administration’s senior officials favor. This is probably temporary, but the mix of tariffs and tax policy makes higher long-term deficits more likely than smaller ones. As to the “manufacturing share of GDP,” no particular reason for optimism there either.  Since the first Trump administration’s tariffs on Chinese goods, steel, and aluminum in 2018, this share has fallen from 10.9% to 9.9% — either regardless of the tariffs, or in part because of them, given that they raised U.S. manufacturing costs. More of this is probably coming, given the Commerce Department’s apparent plans to make factory managers pay 25% more for basic manufacturing inputs including metals, semiconductor chips, and critical minerals, and the April 2 decree’s 10% tariffs on raw materials, wiring, paint, glass, light-bulbs, ceramics, etc. So there’s a high chance that the administration’s policy will drive both of its chosen “success” indicators — as well as better indicators such as the cost of living — in the “wrong” direction, not the “right” one. What does it then do?

FURTHER READING

PPI’s four principles for response to tariffs and economic isolationism:

• Defend the Constitution and oppose rule by decree;
• Connect tariff policy to growth, work, prices and family budgets, and living standards;
• Stand by America’s neighbors and allies;
• Offer a positive alternative.

Ambassador Greer at the hearing, with prepared text and full video. An exchange with Rep. Boyle on “success” as defined by trade balance and manufacturing GDP share at 2:20:43.

Data:

Census’ most recent monthly FT-900 trade release, with exports, imports, and balances generally, by product type, and by country.

… the FT-900 archives back to 1991.
… and a one-page summary of U.S. imports, exports, and trade balances from 1960 to 2024.

The Bureau of Economic Analysis’ data on quarterly and annual GDP estimates, along with its GDP by Industry calculations, services trade, investment flows, and more.

Farm trade figures from USDA’s Global Agricultural Trade System.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

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FACT: The 1890s were not America’s “wealthiest” age.

THE NUMBERS:  U.S. share of world GDP, PPP basis*  –

2024	15%
2016	16%
1950	27%
1913	19%
1890s avg.	~15%?
1870	9%
1820	2%

* Angus Maddison calculations for 1820-1950; IMF World Economic Outlook April 2025 for 2016 and 2024.

WHAT THEY MEAN:

The Trump administration’s binge of tariff decrees, proclamations, and amendments leaves the U.S. with a tariff rate hard to calculate since it changes every week, but likely somewhere between 15% and 25%. Internationally, this is a strange tax-and-trade neighborhood for America; the neighbors are a sketchy assortment of least-developed countries, failed states, shady tax havens, small islands, and rogue states. (See below for some examples.) But the administration and Mr. Trump personally justify high tariffs not by alluding to the success of modern high-tariff countries, but by looking a long way back through the American past. To cite an eccentric and frequently repeated comment:

“In the 1890s our country was probably the wealthiest it ever was because it was a system of tariffs.”

What to make of this?

It’s true that America had high tariff rates in the 1890s. The U.S. International Trade Commission’s table of tariff rates back to 1891 shows a “trade-weighted average” tariff averaging 27.9% from 1891 to 1900, over ten times the 2.4% of 2023.  It’s wrong, though, to say American wealth peaked relative to other countries, let alone in absolute terms, at that time.  Based on the research of Angus Maddison et al., the U.S.’ share of ‘global GDP’ in the 1890s was probably around 15%. This is a lot higher than it had been before the Civil War (which was also a high-tariff period), but well below the levels of the 1950s and 1960s (after 30 years of steadily falling tariffs), and about the same as it is today.

More important, Americans at the time didn’t feel rich at all. A four-part stat snapshot:

Short lives: America’s average life expectancy at birth in 1900 (Table 13) was 47. This is six years below today’s lowest in the world, the 53 years the World Bank reports for Chad and Lesotho. The short life expectancy in part reflects the extremely high pre-20th century infant mortality rate — more than one in ten American children died before the first birthday — but also frequent death in early life and middle age due to accidents, infections, and contagious diseases. No vaccines, no blood transfusion, no antibiotics, no anti-inflammatory drugs.

Injustice: Work and daily life in 1890s America were deeply unjust and growing rapidly worse. Between 1890 and 1895, 16 states adopted segregationist constitutions and laws covering employment, marriage, voting, education, railroad and streetcar travel, and other matters.  The Supreme Court’s 1896 “Plessy v. Ferguson” decision accepted them all.

Bad economy: GDP accounting and data collection started in the early 1930s, so we don’t precisely know 19th-century growth rates.* (One reputable economic-history project guesses around 3.0% over the 1880s and 1890s.This is slightly below the 3.5% average over the Biden administration, and a bit above the 2.5% average since the 2008/2009 financial crisis.) The decade’s main economic event, though, was the four-year Depression following the “Panic of 1893.” It introduced the word “unemployment” to common American discourse, and prompted the first mass protest march in U.S. history, when “Coxey’s Army” of 6,000 desperate Ohio and Pennsylvania workers marched to the National Mall to appeal (unsuccessfully) for federal relief.  Those who had jobs, meanwhile, worked on average for 2980 hours a year – 1200 hours more than modern-day workers, meaning 10 hours a day, six days a week, with no holidays.

Widespread poverty: Americans were poor and used most of their income for life necessities.  The Bureau of Labor Statistics’ “100 Years of Consumer Spending” reports that in 1900, the average American family spent 58% of its income on food and clothes.  Today the comparable share is 12%.  Even the top end of “Gilded Age” society had only 8,000 automobile owners and 600,000 mostly communal telephones, in a country of 76 million.

As to the role of tariffs in all this: Gilded Age tariff system defenders argued that high tariffs protected Americans from “low-wage” European and Asian competition. Critics said it mainly protected monopolies, while encouraging political corruption and depressing middle-class living standards.  Public opinion polls weren’t invented until the 1930s, so we don’t really know how the public in general felt. But opposition to high-tariff policy in the 1890s and 1900s was strong, organized, and persistent enough to convince 42 state legislatures to pass an amendment to the Constitution in 1913 authorizing the creation of the income tax, which replaced the tariff as the main federal revenue source.

So, not an era of wealth and not a tax policy the public loved.  Nor a time anyone should want to revisit.

 

FURTHER READING

PPI’s four principles for response to tariffs and economic isolationism:

• Defend the Constitution and oppose rule by decree;
• Connect tariff policy to growth, work, prices and family budgets, and living standards;
• Stand by America’s neighbors and allies;
• Offer a positive alternative.

Laura Duffy for PPI on why tariffs are a bad form of taxation: can’t raise enough money to support a modern government; non-transparent; inequitable; harm to downstream industries.

Back then: 

Two book recs for those wanting a deep dive into Gilded Age tariff debates:

Pioneer journalist Ida Tarbell’s contemporary take in The Tariff in Our Times (1915) associates high-tariff policy more with monopolies, high prices, and corruption than with “wealth”. Samples: “extortion and brigandage”, “jobbery”, “shameless looting”, etc.

Doug Irwin’s magisterial Clashing Over Commerce (2017) reviews U.S. trade and tariff history from the 18th century forward: the First Congress, the “Tariff of Abominations” and the nullification crisis, McKinley and Hoover, Wilson’s replacement of tariffs with the income tax and Roosevelt’s Reciprocal Trade Agreements Act, 20th-century liberal internationalism and its critics, the first Trump administration and the equivocal Biden term.

Big picture:

Via the OECD, Angus Maddison’s data on world GDP, growth, population, etc., 1-2,000.

And economic-history consortium “Measuring Worth” tries to calculate growth, inflation, and other data back to the 18th century.

Now:

A tariff rate between 15% and 25% puts Americans in the world’s highest tariff bracket.  Per the World Bank’s “weighted-mean” calculations, only three jurisdictions have tariff rates above 20%, and 21 have rates between 12% and 21%. They’re very diverse — small islands, tax havens, least-developed countries, conflicted or failed states, a few bad actors — but share a common theme of inability, as being too small, too poor, or too disorderly, to operate broader-based, fairer taxes on incomes or consumption. The top three are Bermuda at 29.5%, the Solomon Islands at 20.7%, and the Cayman Islands at 20.4%.  Here are ten of the 21 between 12% and 20%:

18.2%        Congo (Republic)
17.6%        Djibouti
16.8%        Chad
16.3%        Bahamas
14.7%        Nauru
14.6%        Barbados
14.5%        Central African Republic
12.7%        Ethiopia
12.6%        Venezuela
12.1%        Iran

For an alternative source, the WTO’s Tariff Profiles 2024 gets somewhat different numbers because it uses ‘simple averages’ and ‘trade-weighted averages’ rather than ‘weighted means’, and doesn’t cover all the small islands. But the picture is pretty similar.

And last:

A mordant sound-track for the next few months from folk legend Pete Seeger: Big Muddy.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

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