The U.S. trade deficit narrowed sharply in the fourth quarter, suggesting that President Trump’s tariffs may be rebalancing trade by opening foreign markets to U.S. exports and reducing dependence on imports.
The three-month average goods deficit fell to $80.5 billion in the fourth quarter, down 27 percent from $109.6 billion in the same period a year earlier. The combined goods and services deficit dropped even more sharply, falling nearly 40 percent to $50.7 billion from $83.6 billion in the fourth quarter of 2024.
Average exports climbed $22.2 billion while average imports declined $10.7 billion compared to the fourth quarter of 2024, Commerce Department data showed Thursday.
Over the six months ending in December, the average goods deficit was also smaller than in the year-earlier period, reinforcing the idea that the most recent data are showing improvement even if individual months still bounce around. From July through December, the goods deficit averaged about $84.6B per month, around a 20 percent decline from a year earlier.
The improvement came despite a December spike that saw the monthly deficit widen to $70.3 billion, driven primarily by volatile gold flows and a surge in computer accessory imports likely linked to investment in artificial intelligence. Exports fell $5.0 billion in December, reflecting weak economic growth abroad, while imports rose $12.3 billion.
Trade figures can be volatile month-to-month. Economists often look to the three-month trend for the trajectory of trade balances and the effects of policy.
For the full year 2025, the deficit was essentially unchanged at $901.5 billion, down $2.1 billion from 2024. But the composition shifted significantly: exports grew $199.8 billion, or 6.2 percent, outpacing import growth of $197.8 billion, or 4.8 percent.
Although the goods deficit increased by around 2.1 percent this year, that’s below the 4.5 percent average annual increase over the prior four years under President Biden, when the deficit grew from $90.3 billion in 2021 to $101.3 billion in 2024. This suggests that even on an annual basis, Trump’s trade policies are pulling in the deficit.
China Trade Plunges, Friend Deficits Grow
The data showed significant rebalancing by country. The deficit with China plummeted $93.4 billion to $202.1 billion in 2025, the smallest in more than two decades, as U.S. exports to China fell $36.9 billion and imports dropped $130.4 billion.
Trade flows shifted to other Asian countries. The Taiwan deficit surged $73.0 billion to a record $146.8 billion, driven by an $85.2 billion increase in imports—much of it semiconductors and computer equipment. Vietnam’s deficit grew $54.7 billion to $178.2 billion, while Mexico’s widened to a record $196.9 billion.
The shift reflects both tariff-driven supply chain adjustments and surging demand for artificial intelligence-related hardware. Computer imports alone increased nearly $145 billion last year as companies invested heavily in AI infrastructure.
December’s Gap A Drag on GDP
After the report, economists revised their estimates for fourth-quarter GDP, which is due Friday. The Federal Reserve Bank of Atlanta’s GDPNow model now shows net exports contributing minimally to growth, currently estimated at 3 percent.
The merchandise trade deficit in inflation-adjusted terms—which feeds into GDP calculations—widened to $97.1 billion in December, the highest since July. Trade in nonmonetary gold, which swung sharply in December, is excluded from GDP calculations.
Trump has used tariffs as leverage to open foreign markets and encourage domestic production. The administration has disputed research suggesting Americans bear the costs of tariffs, pointing to evidence that foreign suppliers and domestic retailers are absorbing much of the burden through compressed margins.
The Supreme Court is weighing whether Trump has authority to impose broad tariffs under emergency law. A decision could come as soon as Friday or early next week.
The December data showed deficits with specific countries shifting dramatically. The Taiwan deficit jumped $4.1 billion to $19.8 billion in December alone, while the Mexico deficit narrowed $3.3 billion to $14.5 billion. The surplus with Switzerland, typically driven by pharmaceutical and gold trade, collapsed $8.0 billion to just $0.1 billion.
The Census Bureau noted that release schedules remain uncertain following the recent government shutdown, with the next trade report date to be determined.
