U.S. trade deficit in goods hits record high just before Trump took office. It won’t be easy to reduce them.

By Jeffry Bartash

Imports spike in December ahead of Trump tariffs

The U.S. posted a record trade deficit in goods in 2024, spotlighting what is likely to be a constant eyesore under the second administration of President Trump, which is encouraging more domestic production.

The U.S. deficit in goods totaled $1.2 trillion last year, slightly above the prior record set in 2022, the government reported Wednesday.

A big surge in imports in December could take some shine off gross domestic product in the fourth quarter. High deficits subtract from GDP. The report is due Thursday morning.

In any case, Trump has promised to raise tariffs sharply on other countries to reduce imports and try to lure more companies to make their products in the U.S.

“There will be no better place on Earth to create jobs, build factories, or grow a company than right here in the good old U.S.A.,” Trump said in a virtual speech to global political and business leaders in Davos, Switzerland last week.

The president took the same hard-as-tacks approach in his first term, but the trade deficit continued to rise as it had done under every president since Jimmy Carter.

High trade deficits stem in large part from many manufacturing goods moving production overseas in the past several decades, as companies sought to take advantage of lower-cost labor or lighter regulations in other countries.

A bigger trade deficit isn’t all bad news, though.

The U.S. economy has recovered faster since the pandemic and has gotten stronger. The result: Americans can afford to buy more imported goods than people in other areas such as Europe whose economies have fallen behind.

Key details: The trade deficit in goods shot up 18% in December to $122 billion – the second-highest level ever – in a sign some companies sought to bring in goods before the oncoming Trump tariffs.

Imports of goods rose 3.9% in December to $289.6 billion – also the second-highest level on record. U.S. businesses imported more industrial supplies and consumer goods.

U.S. exports fell 4.5% to $167.5 billion in December. A strong dollar, which makes American goods more expensive, and a weak global economy weighed on shipments.

The total U.S. trade deficit for 2024, which also includes services, will be published next week.

The U.S. has run service surpluses for a long time. That will lower the overall trade gap. Banking, entertainment and tourism are big sources of service exports.

Big picture: The most immediate impact of the surge in December imports is a tarnished GDP. Some Wall Street firms slashed their estimates and all signs now point to a sub-3.0% reading.

In the longer run, high tariffs could dampen demand for imports and partly reduce the trade deficit.

Yet the U.S. no longer produces many goods such as clothing or consumer electronics. It would take at least several years for manufacturers to shift production back to the U.S.

Economists say deficits are likely to remain high regardless of the actions taken by Trump, especially if retaliatory action by other countries reduces U.S. exports.

Looking ahead: “Net trade was expected to be neutral to GDP growth in Q4, but the decline in exports and rise in imports suggests it is now on track to drag 0.5 percentage points from growth,” senior economist Matthew Martin of Oxford Economics wrote in a note to clients.

“However, we expect much of the strength represents front-loading from businesses ahead of potential tariffs, and to a certain extent the now-resolved port strikes.”

Market reaction: Stocks DJIA SPX were mixed in Wednesday trading.

-Jeffry Bartash

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

01-29-25 0958ET

Copyright (c) 2025 Dow Jones & Company, Inc.