Tariffs at Work: Historic Gains Amid Media Skepticism | The American Spectator

A headline from Bloomberg on Thursday was indicative of legacy media’s response to new trade data released by the Commerce Department. It declared, “U.S Notches One of Its Biggest Annual Trade Gaps Since 1960.”

So, were the mainstream economists and political pundits right? Should we begin to doubt that President Trump’s tariffs are having any effect at all? Can tariffs actually rebalance trade? That, of course, is precisely the reaction the headlines are intended to evoke. (RELATED: The Productivity Boom Economists Didn’t See Coming)

The fallacy in the media’s argument is that such superficial treatment of the data obscures what may be the most dramatic trade rebalancing of imports and exports in modern American history.

The Trend Is What Matters

Yes, the annual 2025 deficit was essentially flat at $901.5 billion (down just $2.1 billion from 2024), but this masks what could be described as a tectonic shift in Q3 and Q4 — and particularly in the last three months.

The fourth quarter of 2025 posted the largest rolling three-month trade deficit decline in recorded history, with the three-month average falling $35.3 billion year-over-year, a 45 percent decrease. This reduction in deficit surpasses even the peak months of the Great Recession in 2009.

The three consecutive months of 2025’s fourth quarter each posted year-over-year rolling declines that rank among the largest in recorded history in monthly data beginning in 1992. The only comparable period is 2009 — but there’s a crucial difference. The 2009 trade improvements were caused by an economic collapse and falling demand precipitated by the financial crisis and recession. The 2025 improvements in trade imbalances are occurring during a period of unusually high GDP growth in the economy.

The three-month average goods deficit in Q4 of 2025 was $80.5 billion, down 27 percent from $109.6 billion in the fourth quarter of 2024 — a decline of $29.1 billion. Moreover, the combined goods and services deficit fell even more dramatically, dropping 40 percent from $83.6 billion to $50.7 billion.

Even looking at the data trend for the last half of the year (from July through December), the average goods deficit ran roughly $84.6 billion per month, about 20 percent below the year-earlier period. From the March peak — when importers were purchasing in anticipation of Trump’s tariffs — to December, the combined trade deficit fell 48 percent, from $136 billion to $70.3 billion.

First Quarter Buying — Anticipating Tariffs

It is important to offer praise when it is due. Of the legacy media, it was the Wall Street Journal that actually gave effect to the timing issue: “The trade deficit soared in the months following Trump’s re-election in late 2024, as companies raced to bring foreign goods onshore ahead of the tariffs they expected him to impose.”

The context here is all-important. The unusually large deficits in the first quarter of 2025 — averaging $154.8 billion per month — were artificially inflated by buying in anticipation of tariffs. The subsequent decline partly represents Trump’s tariff rebalancing after that surge in orders.

Note of caution: Even accounting for the expected “anticipation phenomenon,” the improvement is remarkable. But the question is whether the current trend represents a sustainable new equilibrium or will deficits edge back up once the inventory correction runs its course. The next several months of data will tell the tale.

It’s important historically to note that since 1992, there have been only two periods of comparable trade deficit declines. The first was, of course, the 2009 Great Recession, when significant quarterly declines occurred between March and November, driven by economic collapse. The second is Q4 of 2025, which comprised comparable three-month declines, driven by tariff policy during economic expansion.

This makes the fourth quarter of 2025 the largest trade deficit improvement in history outside of a major recession. (RELATED: Trump’s First 12 Months: The Economy, Venezuela, and the American Electorate)

The China Issue

As is typical, legacy media overlook a major aspect of the real story from Trump’s first year of tariff-driven trade data.

In the last three months of 2025, the China trade deficit fell $93.4 billion to $202.1 billion — this represents the smallest in more than 20 years. It also represents a 32 percent decline year-over-year, achieved not through economic collapse or recession but through economic policy rebalancing — tariffs.

Trade flows shifted to Taiwan (deficit up $73 billion), Vietnam (up $54.7 billion), and Mexico (up to a record $196.9 billion). While some of this represents true trade rebalancing, portions of it may also reflect supply chain rerouting. But what the data on China shows is that tariffs can, in fact, reshape bilateral trade patterns — and do so significantly. (RELATED: While Canada Cozies Up to China, Mexico Imposes Harsh Tariffs Due to Chinese Auto Dumping)

The mainstream media do a disservice to the public by their preoccupation with the government’s report of a “flat annual trade deficit” — it bespeaks both analytical error and, perhaps, a ploy designed to misdirect the electorate towards rhetoric rather than reality. One cannot treat the period January through December as equally weighted when assessing policy impact. The truth is in the details. Trump’s tariffs were announced in April 2025. The relevant comparison, therefore, isn’t 2025 versus 2024 — it’s post-tariff periods versus pre-tariff periods. (RELATED: Trump’s Economy Grows 4.3 Percent, Dashing Economists’ Lower Expectations)

Clearly, the critical unknown in the report is whether or not the numbers can be sustained. Several variables cloud a glance forward. First, and this is really important, how much of the second half of the year’s improvement is merely inventory correction after tariff-anticipation buying? Second, as companies finish rerouting their post-tariff supply chains, will the trade deficit stabilize or continue falling?

Finally, after the Supreme Court on Friday struck down a portion of Trump’s authority to impose sweeping tariffs across the globe, it is difficult to determine what the balance of his economic agenda will look like going forward, at least as it relates to his tariff policies.

The Supreme Court’s decision does not affect all of Trump’s tariffs but does invalidate those implemented using a 1977 law called the International Emergency Economic Powers Act. But this will impact Trump’s efforts to rebalance trade.

The economic trade data over the next six months will determine whether we are seeing a permanent structural shift — a rebalancing — in import-export flows or a short-term correction.

America just experienced the largest quarterly trade deficit decline in recorded history outside of an economic collapse or recession. And the trend (hopefully it’s more than that) is beyond question — even if the annual deficit figure is “grist for the mill” of legacy media rhetoric.

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