NEW YORK – President Donald Trump’s tit-for-tat economic policies have forced businesses to brace for an all-out trade war, and pushed the trade deficit to levels unseen before.
The latest numbers from the Bureau of Economic Analysis show that the goods and services deficit for January was $131.4 billion, up $33 billion from December. The U.S. ended 2024 with a $98 billion trade deficit, already a record high and the first sign of a global economy reacting to Trump’s election.
The increased trade deficit reflected the impact of Trump’s tariffs even before they took effect, as companies and consumers scrambled to import goods ahead of tariffs taking effect. The trade gap is expected to remain wide for a while as companies think about where and how to invest right now.
“These numbers are very distorted by a rush of imports aimed at beating expected tariffs,” said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce. “So the result is that the January numbers may not be giving a meaningful reading on where the trend will be for the deficit ahead.”
The jump in imports may have been partly the result of a large spike in non-monetary gold imports – that is, gold not held as reserve assets. Those gold imports aren’t counted as part of the trade deficits in calculations of gross domestic product, meaning the January figures may overstate the gap, said Oren Klachkin, financial market economist at Nationwide. However, it does not discredit the fact that the deficit has increased, he said.
While a large trade deficit doesn’t always point to a weak economy, the White House’s policies are creating uncertainty and forcing businesses to make decisions they normally wouldn’t make. Klachkin explains the current administration views the trade deficit differently than many economists, leading to “some friction.”
“That uncertainty element, on its own, is a negative for the economy,” Klachkin said. “When uncertainty is high, businesses don’t invest as much, and that also has negative implications for consumers.”
And that friction has American businesses unable to prepare for what’s ahead.
Just three days after Trump re-imposed the previously paused 25% tariffs on Canada and Mexico, citing concerns that both nations were not doing enough to stem the flow of fentanyl into the country, Trump took to social media to announce a pause in tariffs against Mexico and Canada until April.
On Wednesday, the three biggest car manufacturers—General Motors, Ford Motor, and Stellantis—were also given a one-month reprieve from the newly imposed tariffs.
Trump also announced on March 3 an additional 10% tariff on goods coming from China would go into effect on March 4. Beijing responded with its own tariffs of up to 15% on U.S. farm products, including soybeans, meats, and grains.
The stock market plummeted on Monday as a result of the implementation of these new tariffs. They did rise back up 1% after tariffs on car imports were delayed.
Additional tariffs are planned to go into effect soon. The White House will enact a 25% tariff on aluminium and steel on March 12 and a yet-to-be announced amount on all foreign agricultural products and foreign cars on April 2.
The uncertainty surrounding trade policy is now impacting small business owners like Tim Fulton, CEO of Ramper Innovations. Fulton opened his business in Sitka, Alaska in 2014, wanting to bring manufacturing to his small community, producing motorized holding conveyor systems for narrow-bodied aircraft. For his business to run smoothly, he needs to import parts from around the world, including Mexico, India, Japan and Bulgaria.
“I would love to be able to purchase just from American companies,” Fulton said. “But the fact is, there’s no American companies making what we need so we have to source our parts elsewhere, and that’s going to create a lot of issues with us, a lot of uncertainties. We are a small company, so we don’t have inventory.”
The latest round of tariffs has already disrupted Fulton’s business. He increased his latest quote to a customer by 20%. The contract also includes a clause stating that, due to the uncertainty around tariffs, additional costs may be incurred and passed on to the client.
“What we are getting back is that this increase is making (customers) not want to purchase, or moving their purchase back further, those kind of things,” Fulton said.
Fulton is now considering relocating his manufacturing operations to outside the United States.
“We’re honestly at a point that, 11 years later, I don’t know how we’re going to keep the lights on,” he said.
This uncertainty will make it hard for businesses to plan and make investments.
“Uncertainty is never great for businesses,” Shenfeld said. “The sooner the dust settles on this, the better so that businesses can plan for the environment ahead.”