And is it really a threat to our way of life?

President Trump recently announced he would sharply increase America’s tariffs – taxes on stuff imported from other countries – making clear that his primary goal is to reduce or eliminate “trade deficits.” 

In his April 2nd “Liberation Day” speech announcing the new tariffs, President Trump even went so far as to say, “Trade deficits are no longer merely an economic problem. They’re a national emergency that threatens our security and our very way of life.” 

What are trade deficits? And do they threaten our way of life?  

Definition of a Trade Deficit 

A trade deficit is when a country’s imports exceed its exports. In other words, if Americans buy more foreign-made stuff than we sell to other countries, the U.S. has a trade deficit.  

Trade deficits can also be measured between two individual countries. If Americans buy more stuff from China than we sell to China, then the U.S. has a trade deficit with China.  

And it’s true: the U.S. does have a trade deficit.  

In 2024, Americans imported $4.1 trillion worth of goods and services, while we only sold $3.2 trillion worth of stuff to other countries, leading to an overall trade deficit of $918 billion, a record high for America. China alone was responsible for nearly a third of the trade deficit. 

On the other side of the equation is the trade surplus. This is just the opposite of a deficit: if we sell a country more stuff than we buy from them, we have a surplus.  

The U.S. does have a surplus with a few countries, including the Netherlands, Australia, and the UK. And the U.S. has an overall surplus in the “services” category, which covers non-physical things like entertainment, software, and financial services. Americans sold $1.1 trillion worth of services to other countries last year while only spending $814 billion on imported services, a surplus of nearly $300 billion. 

Goods – tangible items like electronics, cars, and food – really drive the trade deficit. 

Does the Trade Deficit Really Matter? 

Peter Navarro, the President’s senior counselor for trade and manufacturing, argued that if more products were made in America (instead of imported), “the U.S. trade deficit would fall, economic growth would increase, and real wages would rise from Seattle and Orlando to Sonoma and Milwaukee.”  

Navarro also pointed out the national security concerns that President Trump has cited. Manufacturers have steadily moved their factories to other countries with cheaper labor; the result, Navarro argued, is “there is only one American company that can repair Navy submarine propellers—and not a single company that can make flat-panel displays for military aircraft or night-vision goggles.” If there was a war, the U.S. might not be able to produce the equipment it needs.  

Not everyone agrees. Former Senator Phil Gramm, who chaired the Senate Banking Committee, put it plainly: “Trade deficits don’t stifle growth, nor do trade surpluses foster it.” Senator Gramm pointed to the period from 1947 to 2004 to illustrate his point: 

  • From 1947 to 1975, the U.S. led the world in heavy manufacturing, regularly ran trade surpluses, and our economy grew 2.1 percent per year.  
  • From 1976 to 2004, American manufacturers moved their factories to other countries, the U.S. ran trade deficits, and our economy grew 2.2 percent per year. 

While the U.S. may be lacking in defense manufacturing capabilities, Senator Gramm pointed out that “U.S. industrial production today is more than double what it was in 1975, the last time we ran a trade surplus. It’s 55% higher than in 1994, when the North American Free Trade Agreement went into effect.”  

Whether trade deficits pose a serious risk or not depends a lot on what you believe drives long-term economic strength. For now, the debate continues – fueled by data, ideology, and some very different ideas about what America needs to protect. 

READ MORE: What Are Tariffs? A Short Primer