Tariffs Failed to Close the Trade Gap — It Just Hit $105.6 Billion

The U.S. trade deficit grew 13.7% to $105.6 billion from July to August, its widest level since the March 2025 record of $140 billion, according to the Bureau of Economic Analysis. The figure arrives 17 months after President Donald Trump's "Liberation Day" tariff package, which he sold as a fix for the persistent gap.

Trump framed the deficit as an emergency when he unveiled sweeping import taxes in April 2025.

"They're a national emergency that threatens our security and our very way of life," he said then. "It's a very great threat to our country."

The data tells a different story. Imports climbed 4.3% to $420.8 billion. Exports rose a slower 2.2% to $205.7 billion. The result is the largest deficit on record since Trump imposed tariffs.

Economists cite the AI boom as the dominant driver. AI-related imports alone added $200 billion to the trade deficit in April, according to the Federal Reserve Bank of Minneapolis.

"The U.S. economy does a bunch of stuff that other countries can't do; one of them is … this AI boom," Tarek Hassan, a professor of economics at Boston University, told Fortune. "And because of the AI boom, foreigners still want to invest in the United States, which is a good thing."

Why haven't the tariffs closed the gap?

Economists point to volatility rather than magnitude. China tariffs spiked to 145% after Liberation Day and have since fallen to about 30%, following the Supreme Court's ruling against duties imposed under the International Emergency Economic Powers Act and a round of bilateral trade agreements. That whipsaw has left companies unwilling to commit to long-term supply-chain shifts.

American businesses remain heavily dependent on foreign goods. The policy unpredictability, economists say, has frozen adjustment.

"There's so much volatility that, essentially, companies are not going to change their behavior," Hassan said. "They're just going to adjust prices and continue on, and that's why this tariff regime has been somewhat ineffective."

Donald Boudreaux, a professor of economics at George Mason University, said U.S. importers keep buying despite higher duties because they expect rising output demand.

"American businesses must be looking at the U.S. economy and their expectations about the future of the U.S. economy, and they're optimistic," Boudreaux said. "They're saying, 'Even though we have to pay higher prices for steel, higher prices for machine parts, higher prices for whatever it is we are importing from abroad, those higher prices are not high enough to dissuade us from providing these inputs that we believe we'll need to meet future demands for our outputs.'"

Is the deficit actually a problem?

Boudreaux argues the gap signals economic strength, not weakness. Dollars sent abroad typically return through foreign purchases of U.S. equities and Treasuries.

"President Trump thinks, on his terms and the administration's terms, this is unambiguously bad news," Boudreaux said. "But in my view, it's, I would say, unambiguously good news. It points overwhelmingly to health in the American economy, and not to any problems in the American economy."

Trump has yet to deliver on two central promises: a manufacturing resurgence and tariff revenue redistributed to households. The White House did not respond to a request for comment.

Hassan warned that policymakers pursuing a smaller deficit could destabilize U.S. credit markets. A closed gap would mean less foreign investment, higher bond yields, and harder financing for the national debt.

"It's going to be a crisis where the trade deficit is going to close because foreigners are unwilling to extend further credit to the U.S.," Hassan said. "Complaining about the trade deficit is like complaining that the bank keeps giving us all this cheap credit."

Whether the administration treats the rising deficit as a failure or a feature will shape the next round of tariff decisions — and the terms U.S. importers and their foreign suppliers plan around.