In an effort to convince American voters that the U.S. economy is improving ahead of the midterm elections, Trump recently touted the reduction in the trade deficit and the increase in tariff revenue as his major economic achievements since taking office in a national address.
But economists seem to disagree. (Pacific Free Markets think tank) Wayne Winegarden, a senior fellow for business and economics at the Pacific Research Institute, warned that a smaller trade deficit and record tariff revenue could be a bad indicator of overall economic health, or worse, a sign of economic problems.
In a recent interview, he stated, "If we reduce the trade deficit, we will buy goods from American companies, and we will all benefit—this idea is tempting, but it's an incomplete view. Unlike the budget deficit, the trade deficit is meaningless."
“This has nothing to do with affordability or growth, so it’s just a distraction,” he added.
Last week, U.S. President Donald Trump addressed the nation, saying, "Remember when I said 'tariffs'? — My favorite word is 'tariffs.' Tariffs are bringing us hundreds of billions of dollars in revenue. We had the worst trade deal ever, and our country was laughed at around the world, but they're not laughing now."
In a December press release, the White House also boasted that the trade deficit had narrowed to its smallest level since mid-2020 in September, adding that this "further demonstrates that President Donald Trump's America First trade agenda is working."
Kimberly Clausing, a professor of tax law and policy at UCLA School of Law and a former U.S. Treasury official, points out that a narrowing trade deficit may simply mean that people are reducing overall spending and investment.
“In the United States, in recent years, a decline in the trade deficit has often been associated with a weak economy due to reduced consumption and investment. This may also be the case now, as some market indicators suggest a weak economy,” he added.
Specifically, despite the slowdown in inflation in November, Federal Reserve Chairman Jerome Powell warned that the data could be affected by the government shutdown.
Federal Reserve Bank of St. Louis A report released in October indicated that "tariff measures have already exerted measurable upward pressure on consumer prices. Price increases beginning in early 2025 closely coincide with the development of tariffs." The report examined data from January to August of this year.
The U.S. Labor Department reported last Tuesday that 105,000 jobs were lost nationwide in October, while 64,000 new jobs were added in November, and the unemployment rate rose to a four-year high of 4.6% in the past month. Furthermore, in the domestic manufacturing sector, the Bureau of Labor Statistics reported that as of September 2025, the industry's workforce would be 12.706 million, a decrease of 49,000 from the 12.755 million at the end of January 2025 when Trump took office.
Winegarden points out that tariffs create opportunity costs because when more money is spent paying taxes on foreign goods or purchasing more expensive domestic products, it reduces a country's purchasing power, investment capacity, and employment capacity.
“When you buy the least cost-effective products, you are subsidizing less efficient jobs, and emotional factors aside, this is detrimental to long-term job creation,” he added.
Jason Furman, professor of economic policy practice at Harvard University's Kennedy School of Economics, also stated that the idea that tariffs reduce trade deficits may have been wrong from the start, as tariffs do not bring any fiscal benefits to the country.
“The trade deficit has not actually shrunk. It’s just that the timeline has changed. Many imported goods were delivered ahead of schedule, resulting in an unusually large import volume between December 2024 and March 2025,” he said.
According to the U.S. Census Bureau's International Trade in Goods and Services report, the country's trade deficit for the first nine months of 2025 increased by $95.2 billion compared to the same period in 2024.
Furman said, "Tariffs have generated substantial revenue, but this revenue has largely offset other tax cuts implemented by the Trump administration. Furthermore, a significant portion of tariff revenue has been borne by American consumers in the form of higher prices. "
(Article source: CLS)
