The trade deficit is reduced
From Forbes:
The trade deficit—a measurement by which the cost of a country’s imports is worth more than its exports—shrank to $29.4 billion in October, the narrowest gap since June 2009 and a 39% decrease from September ($48.1 billion), the Bureau of Economic Analysis reported.
The figures underscore how Mr. Trump’s volatile and sweeping tariff policies have influenced trade flows. When the president unveiled wide-ranging tariffs on imports from dozens of trading partners, U.S. businesses rushed to stock up on inventory, front-loading imports ahead of planned tariff hikes.
This has allowed many firms to avoid passing on the full cost of tariffs to consumers, keeping price hikes on goods relatively tame.
As U.S. households grapple with an affordability crisis, Mr. Trump has more recently expanded the range of goods exempt from tariffs, including key agricultural imports.
Did CBS think there was an “affordability crisis” under Biden? When I Googled “CBS affordability crisis Biden” just now, the results all seemed to be post-Trump.
A reduced trade deficit isn’t a good or a bad thing in itself. “Trade deficit” is a metric given a negative-sounding name, and implies that someone somewhere runs a currency exchange. It’s a curious divorce from reality, that what’s in the legacy and new media is dominated by a desire to give or withhold credit to Trump rather than the thing itself and its consequences.
At least none of the linked articles cited the “imports reduce GDP” fallacy. I’ve seen that one even at Bloomberg and the Wall Street Journal. Imports are zeroed out of the GDP measurement, because otherwise the imports are implicitly counted in consumption.
When the decreased trade deficit is analyzed with the real GDP growth at an annualized rate of 4.3% (Q3), (up from 3.8% in Q2), it makes the narrative harder that tariffs are/will destroy the economy. The other number that is necessary is tax revenue from tariffs, estimated at $210-220 billion for 2025, compared to $78-80 billion in 2024.
Add another necessary number is inflation. The year-over-year headline CPI inflation rate stands at 2.7% and core CPI is 2.6%, once again confounding tariff critics.
I think one of the things people critical of tariffs failed to take into account was the different attitudes many eastern countries have on production. Japan, and I think China, are loath to cut production and lay off workers– unlike American companies that are driven by quarterly profits. An American company might endure one or two negative quarters, looking for ways to cut expenses, but annually, layoffs are a near certainty.
Countries like Japan that have different philosophy will maintain employees and production and absorb negative periods. What that means is many countries were/are willing to absorb the tariffs and reduced margins, even for extended periods to maintain market share.
I think this is one of the driving factors why even with the incredible increase of revenue from tariffs, inflation has continued to come down (or not risen to the expectations of those who prefer the status quo.)
I think we’ll get a clear picture of the effects in terms of gdp growth spurred by business investment, tax revenue from tariffs and inflation as companies continue to absorb the tariffs in 2026.
One of the problems with making a large change to the economy like this is the short political cycle, where every year has become an election of sorts and there is no time to fully analyze the benefits (or costs) of a given policy that is grounded in data rather than speculation.
I have no trouble with the CBS “spin”.
@Brian E:the narrative harder that tariffs are/will destroy the economy.
I’m not sure to what extent there is such a narrative: lots of people predicted negative effects, some predicted severe negative effects, very few predicted they would “destroy” the economy in a literal sense. But even so, much of the tariffs promised by Trump were never implemented, and those few people who did make such extreme predictions can point to Trump having backed off what he said he would do. That said, we never lived in a free market utopia before Trump, we have always had all kinds of trade barriers and tariffs even under supposed “free trade” agreements, and a giant chunk of the economy is under heavy Federal regulation and monopsony.
There’s this terrible distortion field about anything to do with Trump: so many enemies of Trump must hype and mischaracterize anything Trump says, so many friends of Trump must hype and mischaracterize anything said against Trump, and then there’s Trump himself who’s a negotiator, a salesman, and a promoter, and whose statements aren’t always intended to be accurate or factual.
Tariffs involve trade offs, and metrics to decide how good or bad they are.
Long term trade deficit means clear lower prices to current consumers, but uncertain lower job prospects for workers competing with the lower wage imports.
Low prices are good, but fewer jobs not so much. The tariff doomers were wrong in 2025, by inflation & export & GNP estimates. Wrong. When a theory predicts high % higher prices, but reality is low % higher prices, the theory is wrong.
When the defenders of the theory say it is only wrong because it had to oversimplify some things, that should be an admission that the theory holders didn’t know enough to make the “bad future” prediction. All Econ theories are simplifications—but Trump’s estimates were clearly better than the anti-tariff globalists. Inflation lower than predicted is a key error.
Lower oil prices is not quite disinflation, but looks a lot like it in the macro numbers, (An argument that much lower oil prices dominated the 10%-ish import taxes increasing prices.)
There is likely some range of very high tariffs that would be terrible for the US economy, but 10% certainly isn’t it. Were tariffs increased by 10% points each year, 10-20-30…100%, it might also be that the US economy would always get a better US jobs vs prices result. High positive trade balance has hugely helped the Chinese mfg, so that they have little need to import anything other than raw materials. The US could possibly be even better. But I prefer more trade, tho also lower deficits. Both trade & fiscal, govt spending > taxes, deficits.
Trump’s 2025 economy is magnificent. Yet far from perfect.
OT: Well, well, well
https://www.cnn.com/us/live-news/minneapolis-ice-shooting-01-08-26
Great interview with Secretary of Commerce Howard Lutnick by Chamath Palihapitiya.
It’s a good sign if the balance of trade deficit is coming down while gdp growth remains robust. Ideally, growth remains high because we are exporting more and producing more internally.
Tariffs are a tool to produce that outcome. Lutnick expects high GDP growth as foreign investment that was agreed to as part of tariff negotiations causes a surge of construction. He’s “got a spreadsheet” and is going to hold these countries to their promises. There are four ways to grow gdp. Consumption, Investment, Government spending or Net Exports (exports-imports). The goal should be increased investment and net exports, while reducing government spending.
Howard Lutnick: How America Can Hit 6% GDP Growth in 2026
https://www.youtube.com/watch?v=fd6QaEJOjvI
@Brian E: Net Exports (exports-imports).
Does not grow GDP by definition. It looks that way superficially because imports are already counted once implicitly in the the other categories. Exports can grow GDP by themselves, but imports are zeroed out of the GDP measurement and mathematically cannot affect it.
Try asking Grok if you won’t believe FRED.
Trade deficits result in “excess” dollars at foreign central banks.
What to do with these dollars?
Dollars can only be used to buy / trade assets or products that trade in $$$.
Many of these dollars are used to buy US treasuries, which encourage the USA to continue its profligate deficit spending (using borrowed money) and expand the US debt. These central bank purchases of treasuries help keep interest rates lower than they otherwise would be absent these purchases.
Presently, foreign central banks and other foreign investors own $ 9 TRILLION in US Treasuries and interest is paid on this debt (by you and me) to the tune of billions of $$$$ every year.
Non-stop deficit spending cannot go on forever.
Trump’s tariffs – if it works according to his plans – will (hopefully) result in large home grown productivity gains, growth in employment and business investment, which (hopefully) will produce larger inflows of tax dollars into the govt.
Ideally, these inflows of tax dollars would greatly reduce the need for the federal govt to borrow $$$ to finance the deficit, or ideally, eliminate deficit spending (and attendant borrowing) in its entirety.
One can only hope.
For many many decades, foreign nations have imposed punitive tariffs on US goods and nobody predicted or suggested that those nation’s economies would implode (and they never did implode).
Trump does it and bingo, the US economy will implode according to “economic experts;” and cause run away inflation. These “experts” were strangely silent when other nations imposed tariffs on US goods.
If it had been Biden or Cackling Harris or Newsom who had imposed tariffs, instead of Trump, you can bet your house that all the “experts” would be proclaiming how beneficial the policy would be for the American worker.
@John Tyler:
Bravo!
@JohnTyler:foreign central banks and other foreign investors own $ 9 TRILLION in US Treasuries and interest is paid on this debt (by you and me) to the tune of billions of $$$$ every year.
So they sold us stuff cheap, shipped the money back to us up front, and we pay it back little by little over time at a minuscule interest rate. The government shouldn’t overspend, but it’s hard to see that the foreigners are in any way responsible for that, or that we’re losing by the deal in a way that we couldn’t stop at any time by not profligately spending.
Niketas C., are you saying an increase in Net Exports doesn’t increase GDP?
@Brian E:Niketas C., are you saying an increase in Net Exports doesn’t increase GDP?
It is mathematically wrong to say so, by the definition used to measure GDP. I quoted FRED on that and invited you to consult Grok, which I know for a fact will tell you the same.
An increase in Exports can increase GDP. Net Exports (E-I) would be an increase if and only if E alone increased. If E and I both get smaller, but E-I is still bigger, GDP decreases (all else being equal). That’s the math. It’s because Imports are implicitly counted in Consumption, Government, and Investment and have to be subtracted to zero them out of GDP.
Grok will explain it to you if you don’t like FRED’s or my explanation.
Niketas you’re half right. Imports do not affect GDP, but exports certainly do, and China has exported itself into the world’s second largest economy.
Also, if E and I both get bigger, but the margin of E vs I increases, the GDP will increase. You left that out of your examples, saying GDP increases only if E alone rises. Not always.
@Brian E: I guess a shorter way to say it, that I only thought of just now, is that imports are not negative domestic production. They are not domestic production at all.
The GDP is usually estimated by measurements of consumption, which already include imports, so they get production by backing the imports out of consumption. That makes imports total to zero in GDP estimate. Maybe that helps.
It’s like using a yardstick that has half an inch at the zero end worn off, so you always measure starting from 1 in instead of zero. That means you have to subtract 1 in from the measured length to get the true length. But the true length is unaffected. If you measured from 2 in it would be wrong to say “well I’m subtracting 2 in now so the true length is now shorter by 1 in”. That’s the error made when people say “imports reduce GDP” or your version “increase in net exports increases GDP”.
In your defense, even WSJ and Bloomberg and NYT will make this error, but that’s because they’re journalists and don’t know anything.
@bill:Also, if E and I both get bigger, but the margin of E vs I increases, the GDP will increase. You left that out of your examples, saying GDP increases only if E alone rises.
I am 100% correct to say so. Nothing I does can change total GDP, by definition. If E gets bigger, it does not matter what I does, because I is only there to cancel itself out from the consumption numbers. Imports are not negative domestic production, they are zero domestic production, that’s what “import” means.
Suppose consumption plus government plus investment is $10 trillion, imports are $2 trillion, and exports are $1 trillion.
Total GDP = ($10 T) – ($2 T) + ($1 T) = $9 trillion.
Now I import a $20 bottle of wine: consumption plus government plus investment is $10 trillion +$20, imports are $2 trillion + $20, exports are $1 trillion.
Total GDP = ($10 T + $20) – ($2 T + $20) + ($1 T) = $9 trillion.
Now I import a $20 bottle of wine and export a $50 bottle of whiskey. consumption plus government plus investment is $10 trillion +$20, imports are $2 trillion + $20, exports are $1 trillion + $50.
Total GDP = ($10 T + $20) – ($2 T + $20) + ($1 T + $50) = $9 trillion + $50.
If I export a $20 bottle of wine and import a $50 bottle of whiskey: consumption plus government plus investment is $10 trillion +$50, imports are $2 trillion + $50, exports are $1 trillion + $20.
Total GDP = ($10 T + $50) – ($2 T + $50) + ($1 T + $20) = $9 trillion + $20.
In all cases it only matters what the exports did, because the imports are canceled out of the calculation.
Niketas C, I was saying nothing of the sort. You are right that imports don’t directly affect GDP, since any import is subtracted from exports.
But if imports decrease and consumption stays the same, the GDP will increase because net exports increases. Implicit in that is there has been an increase in domestic production since consumption stays the same.
@Brian E:But if imports decrease and consumption stays the same, the GDP will increase.. Implicit in that is there has been an increase in domestic production since consumption stays the same.
Zeroes cannot add up to a positive or negative number. If domestic production increases it does not matter what the reason for it was or what imports did, because imports are zero in GDP. “Net exports increase GDP” is mathematically invalid and you can’t make it valid with a cause-and-effect assertion about substituting a domestic good for an imported one.
If I buy an extra bottle of California wine this year, GDP will go up, even if I decide to buy an extra bottle of equivalently priced Italian wine, or even if I don’t. Even I decide to buy an extra two bottles of Italian wine in addition to the California, GDP will go up, because the California wine is domestic and the Italian wine is not.
Suppose consumption plus government plus investment is $10 trillion, imports are $2 trillion, and exports are $1 trillion.
Total GDP = ($10 T) – ($2 T) + ($1 T) = $9 trillion.
Now I import a $20 bottle of Italian wine: consumption plus government plus investment is $10 trillion +$20, imports are $2 trillion + $20, exports are $1 trillion.
Total GDP = ($10 T + $20) – ($2 T + $20) + ($1 T) = $9 trillion.
Now I import a $20 bottle of Italian wine and buy a $20 bottle of California wine. consumption plus government plus investment is $10 trillion +$40, imports are $2 trillion + $20, exports are $1 trillion.
Total GDP = ($10 T + $40) – ($2 T + $20) + ($1 T) = $9 trillion + $20.
If I import two $20 bottles of Italian wine and buy a $20 bottle of California wine: consumption plus government plus investment is $10 trillion +$60, imports are $2 trillion + $40, exports are $1 trillion.
Total GDP = ($10 T + $60) – ($2 T + $40) + ($1 T) = $9 trillion + $20.
I have remorsefully decided to cut back on wine and patriotically decided to buy one bottle of California wine: consumption plus government plus investment is $10 trillion +$20, imports are $2 trillion, exports are $1 trillion.
Total GDP = ($10 T + $20) – ($2 T) + ($1 T) = $9 trillion + $20.
In all cases it did not matter what the imports or next exports did because the imports are canceled out of the calculation.
Niketas C., we’re spending time talking about something we agree on.
We should be talking about Lutnick’s incredible optimism about what the Trump administration may achieve in 2026.
But to comment on your scenario, yes if you buy an extra bottle of California wine, GDP will increase, since your purchase will be added to C. If you buy an additional bottle of Italian wine, GDP will remain the same, since while consumption increases, that import is deducted from exports as -M.
If consumption increases, either it is from domestic production or an import. Since Gross DOMESTIC Production only measure DOMESTIC production, any consumption from an imported source will be deducted from Consumption in the Net Exports=(X-M).
Niketas C., for example we could be arguing that including the wages of government employees which is included in G, should be limited to actual purchase of goods or capital expenditures (which would mimic their counterparts in C and I). This distorts the actual value of GDP, which is a simple measure of PRODUCTION.
Something even more perverse than including wages in the Government expenditures is the way the wages are handled when something like a government shutdown occurs.