US Goods Deficit Hits Record High Despite Aggressive Tariff Policies
Washington D.C., Thursday, 19 February 2026.
While the overall deficit stabilized, the gap for physical goods surged to a record $1.24 trillion, defying expectations that steep tariffs would revive domestic manufacturing.
A Paradox of Protectionism
Data released Thursday by the Commerce Department reveals a stark economic paradox: while the overall U.S. trade deficit stabilized at $901.5 billion in 2025, the gap for physical goods ballooned to an all-time high of $1.24 trillion [2][4]. This divergence underscores the limitations of the aggressive tariff regime implemented over the last year, which has reshaped trade routes without delivering the promised renaissance in domestic manufacturing [1][3]. Despite the administration’s efforts to close the gap through double-digit import taxes, the overall deficit narrowed by only a fraction, dropping just 0.221% from the previous year [4].
Volatile End to 2025
The year concluded with significant volatility as the trade deficit widened sharply in December, jumping 32.6% to $70.3 billion [3][4]. This surge was driven by a 3.6% increase in imports, which totaled $357.6 billion for the month, outpacing a 1.7% decline in exports [4]. For the full year, American companies continued to rely heavily on foreign manufacturing, with total goods imports climbing 4.3% to a record $3.44 trillion [3][4]. A key driver of this volume was the technology sector; imports of capital goods, specifically computer chips and accessories, surged to support massive domestic investments in artificial intelligence [1][4].
Rewiring Global Supply Chains
While protectionist policies failed to shrink the aggregate goods deficit, they successfully altered the geography of American trade. The goods deficit with China plunged nearly 32% to $202 billion as commerce was diverted away from the world’s second-largest economy [1]. However, this reduction was offset by exploding deficits with other Asian nations, suggesting a reshuffling of supply chains rather than a return to domestic production. The goods gap with Taiwan doubled to $147 billion, while the deficit with Vietnam shot up 44% to $178 billion [1]. Closer to home, the imbalance with Mexico grew to nearly $197 billion, cementing its status as a critical trading partner alongside the European Union, with whom the U.S. ran a $218.8 billion deficit [1][2].
Economic Fallout: Jobs and Prices
The macroeconomic data challenges the narrative that tariffs would protect U.S. industries and curb inflation. Contrary to goals of revitalizing the industrial base, factory employment actually declined by 83,000 jobs between January 2025 and January 2026 [3][4]. Furthermore, the tariffs—which reached an effective rate of 11.7% by November 2025—have functioned as a tax on importers, raising an estimated $194.8 billion in adjusted customs revenue [5]. This cost burden appears to have filtered down to prices; the Budget Lab reports that prices for imported durable goods rose 1.3% through November 2025 [5]. Ultimately, the overall trade stability was preserved only by the U.S. services sector, which generated a robust surplus of $339 billion, effectively subsidizing the record consumption of foreign goods [1].