US goods trade deficit hit a record $1.24 trillion in 2025 despite Trump tariffs

The Commerce Department reported on February 19, 2026 that the U.S. goods trade deficit hit a record $1.24 trillion in 2025 — a 2% increase from 2024 — despite President Trump's sweeping tariff regime. The weighted average tariff rate rose to 13.5% in 2025, the highest level since 1946. Yet American businesses imported more than ever, driven heavily by front-loaded purchases of AI chips from Taiwan's TSMC semiconductor manufacturer ahead of anticipated tariff increases.

The overall goods-and-services trade deficit actually narrowed slightly, to $901.5 billion from $903.5 billion in 2024, because the U.S. surplus in services trade expanded by $27.6 billion to $339.5 billion. The United States runs a large surplus in services — finance, technology, software, intellectual property, tourism — that partially offsets its goods deficit. The goods deficit hit a record $1.24 trillion while the services surplus helped bring the combined total down to $901.5 billion, the third-highest goods-and-services deficit ever recorded.

Tariffs on Chinese goods — which exceeded 100% on many product categories by late 2025 — did reduce the goods deficit with China by 32% to $202 billion. But that reduction came largely from trade diversion: American companies shifted purchasing to other countries, not from fewer imports overall. The goods deficit with Taiwan doubled to $147 billion due to AI chip purchases. The deficit with Vietnam jumped 44% to $178 billion as Chinese manufacturers shifted production to Vietnam to avoid U.S. tariffs. The EU became the largest goods-deficit source at $218.8 billion.

Economists explain the persistence of the trade deficit through a macroeconomic accounting identity: the trade deficit equals the gap between national savings and national investment. If Americans invest more than they save — which they have done consistently since the mid-1970s — imports must exceed exports. As long as the U.S. runs large federal budget deficits and Americans save at historically low rates, the trade deficit is mathematically inevitable regardless of tariff levels. Tariffs can shift which countries the U.S. trades with but cannot close the savings-investment gap that drives the overall deficit.

The Triffin dilemma provides another structural explanation: because the U.S. dollar is the world's reserve currency, foreign governments and businesses must hold large quantities of dollars to conduct global trade. The only way the rest of the world accumulates dollars is when the U.S. runs a trade deficit — importing more than it exports and sending dollars abroad. As long as the dollar remains the world's reserve currency, the U.S. faces structural pressure to run trade deficits. Reducing the deficit would require either the dollar losing its reserve currency status or a dramatic increase in domestic savings rates.

American households and businesses paid the tariffs, not foreign exporters. Research from the Federal Reserve Bank of 🗽New York found that as of mid-2025, U.S. businesses absorbed about 51% of tariff costs and U.S. consumers absorbed about 37%, while foreign exporters absorbed only about 9% by lowering their prices. The Tax Foundation estimated Trump's 2025 tariffs amounted to an average tax increase of $1,000 per U.S. household in 2025 and $1,300 in 2026 — the largest U.S. tax increase as a percentage of GDP since 1993.

The historical precedent for high tariffs reducing trade deficits is unfavorable. The Smoot-Hawley Tariff Act of 1930, signed by President Hoover despite a petition from more than 1,000 economists urging a veto, raised tariffs on over 20,000 goods. Within four years, global trade collapsed 66%, U.S. imports fell 66%, U.S. exports fell 61%, and unemployment jumped from 8% to 25%. The tariffs deepened the Great Depression by triggering retaliatory tariffs from 24 countries. The lesson economists drew: tariffs do not save jobs or fix trade deficits — they reduce overall trade and incomes on all sides.

The 2025 tariff regime did successfully shift where the U.S. buys goods. The China deficit fell to its lowest level since 2004 — a 21-year low. But economists at PIIE, Brookings, Cato, and the Dallas Federal Reserve reached a similar conclusion: the overall deficit was essentially unchanged because trade deficits are structural, not bilateral. When the U.S. stopped buying from China, it bought from Vietnam, Taiwan, and Mexico instead. The total import bill grew, not shrank.