Following a surge in the trade deficit reflecting unstable trade policies, economic experts predict a slight cooldown in the import rush that defined the start of the year.
As the administration enters its fourth month in office, the data might not immediately reflect the threat of a trade war. While the last few months were marked with a large front-running of goods ahead of tariffs, February is expected to continue that trend but at a slower pace. Experts predict a tightened deficit in goods and services of $122.47 billion for February – down from $131.4 billion in January.
Here are five things to look out for ahead of the report’s release April 3, at 8:30 a.m. EST.
1. New tariffs
Companies have spent the last two months front-running goods ahead of the threat of tariffs. That includes the recent surge in auto sales ahead of the 25% tariffs on foreign automobiles and certain parts to be signed on April 2.
“These tariffs will certainly disrupt our neighbor’s economy,” said Rishav Bista, associate professor of economics at Texas Christian University. “While Canada and Mexico stand to lose much more than the US due to these tariffs, it affects the US as well.”
In January, imports and exports rose significantly as companies prepared ahead of changing policies. Among those increased imports are industrial supplies, consumer goods like pharmaceuticals and cell phones, and capital goods like computers and telecommunications.
However, the onset of additional tariffs on April 2 – dubbed “Liberation Day” – ushers in the next phase of Pres. Donald Trump’s trade policies. The new 10% baseline tariff on countries worldwide continues to create an environment of uncertainty for many businesses.
2. Accelerating exports
Advance data on goods trade showed exports rising 4.1% in February, compared to 1.6% previously. In contrast, imports slowed down to -0.2% compared to 12.5% the previous month. That was most likely in preparation for new tariffs set to go into effect on April 3.
Early indicators from the U.S. Census Bureau show a trade deficit in goods only of $147.9 billion for February.
“Right before inauguration, there was a lot of excitement that we have a pro-business administration, so it’s all going to be great for businesses because (the administration) only focused on things like tax cuts and regulation,” said Vivek Jayakumar, associate professor of economics at the University of Tampa. “But they kind of downplayed what might happen on the trade side, on the tariff side and now I think (businesses) are realizing that President Trump was quite serious about trying to rewire the global trading system and that’s causing almost a rethink among the business community and the financial market community.”
3. Stock market uncertainty
The uncertainty of federal trade policies has also manifested itself in the stock market. Financial markets immediately responded to the latest tariff announcement. The S&P 500 dropped 2% and the Nasdaq Index fell 3.3%.
Last month, the stock market plummeted soon after the last round of tariffs was first announced before climbing back up after Trump paused the tariffs against Canada and Mexico. The stock market has had a pattern of sharp drops followed by stronger finishes by the end of the day in the lead-up to the April 2 announcement.
The surge of uncertainty could affect American industrial production. Bloomberg economists predict a spike in uncertainty could curb production by 1.1% by next year.
Furthermore, economic uncertainty might eventually lead the country into a recession. Goldman Sachs warned clients earlier this week there is now a 35% chance of recession in the next 12 months, compared to 20% previously.
4. Retaliatory tariffs
Trump’s sweeping tariffs could force trading partners’ hands to retaliate. This includes countries like China, India and the European Union. The E.U. has already established an emergency response plan ahead of new tariffs.
Higher prices for imports of input, such as steel and aluminum, for US producers, would increase the cost of production, which would ultimately be passed on to the US consumers, said Bista. This higher cost can lead to lower production and thus, rising unemployment. This is known as stagflation.
“Threat of retaliation from affected countries can result in increased uncertainty, which would affect the stock market and raise volatility in the market. All of these factors point towards worsening the inflation and decreasing American real income or purchasing power via higher cost of consumption,” Bista said.
The U.S. trade deficit was already reflecting the new administration’s threat of a trade war after the November 2024 election. Last year’s deficit of $98 billion, already a record high, continued to soar in the first month of the Trump presidency, a clear sign of a global economy reacting to policy changes.
5. Rising prices
Overall, the direction of trade policies is set to increase prices and consumer surveys show concerns about the potential inflationary effects of tariffs, said Jayakumar.
Additionally, experts agree that the effects of tariffs will be felt more strongly among lower-income households.
“Studies show that consumers with lower income levels spend disproportionately more of their income on food and manufactured goods, which are traded much more heavily than services (which consumers with higher levels of income spend relatively more on),” Bista said. “Therefore, consumers with lower levels of income stand to lose more due to these tariffs.”