NEW YORK — The U.S. trade deficit reached a historic high last year as importers and exporters braced for a possible trade war with its largest trading partners.
The 2024 trade deficit ended the year at over $918 billion, reflecting a 17% increase from 2023, according to the latest figures from the Bureau of Economic Analysis. December saw a spike in imports — totaling over $293 billion — as importers preemptively brought in goods ahead of potential tariffs on Canada, Mexico, and China.
The trade deficit grew rapidly at the end of the year: Imports exceeded exports by $98.4 billion in December, compared to nearly $74 billion in October. It was the largest recorded deficit for December, said Douglas Porter, chief economist at BMO Capital Markets.
“That is a really big deterioration in a short period of time,” Porter said.
The rising tensions between the U.S. and its longtime trading partners Canada and Mexico have already caused some uncertainty among exporters and importers waiting to see how this potential trade war plays out. The White House has emphasized the need to build a more robust economy and has blamed the high trade deficit as the main cause of slowed economic growth – an argument economists overwhelmingly reject.
While this latest annual deficit is the second-largest since the pandemic, the highest-recorded annual deficit was recorded in 2022, coinciding with the onset of the war in Ukraine, which led to a spike in energy prices.
There is typically a seasonal bump in imports in December due to the holiday season, noted Eugene Laney, president and CEO of the American Association of Exporters and Importers. However, the potential for tariffs further prompted companies to move additional goods into the U.S. in anticipation of trade restrictions.
President Donald Trump had promised to enact tariffs on his first day in office, citing large influx of drugs and migrants crossing both the northern and southern border of the U.S. Trump annonced a series of tariffs against Canada and Mexico on Feb. 1. Two days later, he agreed to a 30-day pause in exchange for concessions on border and crime enforcement. A 10% tariff on China was also announced and has now gone into effect. Trump is also contemplating tariffs on the European Union.
Trump is leveraging tariffs against trading partners to push his political agenda, most recently threatening tariffs against Colombia if the country did not accept deportees on military planes.
Peter Morici, a professor at the University of Maryland and former director of the Office of Economics at the U.S. International Trade Commission, believes the 30-day pause with Canada and Mexico will likely become permanent, stating tariffs “would have completely disrupted the economic relationship in North America.”
For exporters and importers, the uncertainty regarding trade between the U.S., Canada, and Mexico has not yet caused any pullback in terms of businesses trading in the country. However, it has complicated supply chain planning for companies, Laney said.
“We have to continue to communicate that businesses have to have certainty around delivering to their customers as well as to their suppliers,” Laney said. “At the end of the day, what we’ve learned from the US-Canadian issue and the Mexican issue is that a lot of this impacts healthcare, agriculture.”
Economists say the growth in the trade deficit last year reflects in part the relative strength of the U.S. economy: A strong job market and rising wages have allowed American consumers to buy goods from overseas. Many trading partners, however, have weaker economies, hurting U.S. exports.
However, some remain optimistic things will cool back down as trade negotiations are ongoing.
“I do expect the trade deficit to snap back. It might not go all the way back to $74 billion but I suspect it’ll be a lot smaller than $98 billion in a few months from now,” Porter said.