In May, the U.S. goods and services trade deficit widened sharply to $77.6 billion. This represents a staggering 42.2% jump in just a single month. To put that in perspective, the trade gap is now significantly higher than the $70.1 billion monthly average seen during the Biden administration.
But this is not alarming unless you were listening to the Trump administration’s explanation for why we needed to start a global trade war. America has a trade deficit because our country is so prosperous that we can afford to purchase more goods from the world than we sell to it. A trade deficit in and of itself is not necessarily bad; for instance, many of the globe’s poorest nations do not have trade deficits because their citizens cannot afford to purchase many goods. However, the promise of the protectionists in the second Trump administration was that their extraordinary tariff campaign would eliminate the trade deficit and bring back American jobs. It’s done neither.
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Let’s take a look at the most recent numbers. The May surge was driven by a 3.3% leap in imports, reaching $395.3 billion. Much of this was fueled by record-high imports of capital goods as American businesses continue to invest heavily in artificial intelligence infrastructure. By taxing these critical inputs, we aren’t “fixing” the deficit; we are simply making it more expensive for American firms to lead the global AI race.
We are also seeing the return of “front-loading.” Just as they did in early 2025, retailers and manufacturers are pre-purchasing inventory to beat anticipated tariff hikes and Section 301 investigations. This inventory hoarding creates a temporary spike in the deficit, not a structural shift in trade flows.
While imports surged, our exports actually fell by 3.2% in May. The higher costs of industrial inputs that American manufacturers need are undermining our cost-competitiveness abroad. Nationally, protectionist policies often have the unintended consequence of acting as a tax on our own exports, as retaliatory tariffs from partners further squeeze our producers — just ask America’s farmers about losing market access.
Meanwhile, private-sector job creation of less than 90,000 per month is on track this year for the 12th-lowest level of the past four decades (at a dismal 30th percentile) after last year’s troubling eighth-lowest performance. The economy actually lost an average of 5,000 jobs each month during the 10 months the “Liberation Day” tariffs were in effect. Since January 2025, the nation has lost more than 200,000 private-sector jobs outside of the heavily subsidized healthcare and social assistance sectors. More than 2.2 million full-time jobs disappeared. This is far from a promised “Golden Age” for the American worker.
What the protectionists miss is that a trade deficit is not money “lost” to foreigners. Every dollar of trade deficit is matched by a dollar of capital surplus flowing back into the United States. Some of this surplus flows to federal government debt, holding down interest costs to taxpayers. Much of it returns by way of foreign direct investment in American businesses. The NAFTA era proved the point: Since the agreement’s implementation in 1994, annual FDI inflows exploded more than 500% to over $330 billion, helping fuel a doubling of American worker productivity over the past four decades. Foreigners who earn dollars selling us goods do not stuff them under mattresses; they invest them in American companies, factories, and securities.
FDI often finances precisely the sectors where America enjoys the greatest comparative advantage: technology, finance, aerospace, and advanced services. This expands the industries that create new jobs, many of them higher-paying than the positions that protectionists promise to resurrect. In large part because of these investments fueled by the much-maligned trade deficit, the American economy has added more than 45 million jobs since 1994, middle-class real family income has risen by more than $28,000, and a greater share of prime-working-age adults is employed today than before NAFTA. The trade deficit bemoaned by protectionists reflects the world’s confidence in the American economy.
A fundamental misconception persists about who pays for the solution (tariffs) to this fictional problem (the trade deficit). During a congressional hearing, Small Business Administration Administrator Kelly Loeffler asserted that “80% of the tariffs are paid by the foreign countries where they originate.” The evidence suggests otherwise. Research from the Federal Reserve Bank of New York found that the vast majority of the costs of recent tariffs were borne by American importers, businesses, and consumers, making tariffs function much like a tax on domestic purchases of imported goods.
The arithmetic is painful for working families. This year, despite the Supreme Court striking down the IEPPA tariffs, a typical family will shoulder $700 in Trump tariff taxes on top of the more than $2,000 per family last year. For more than half of American families, the tariff tax claws back more than the tax cuts in the One Big Beautiful Bill.
In February, the Supreme Court correctly ruled that the International Emergency Economic Powers Act was never intended to give the executive branch the unilateral power to impose sweeping taxes on the public. The administration’s subsequent pivot to Section 122 — a temporary measure meant for balance-of-payments emergencies — is another example of pushing the legal envelope to enforce a protectionist worldview. This “stop-start” rollout of tariffs creates an environment of uncertainty that chills business investment and strains our relationships with long-standing allies, while rewarding those who can afford lobbyists to create carve-outs.
WAITING FOR TRUMP’S GOLDEN ECONOMIC AGE
The empirical record is clear: After more than a year of this experiment, the trade deficit looks much the same as it did before, driven by macroeconomic forces. No surprise, given that tariffs alone cannot alter the balance of savings and investment. We’ve seen the same pattern repeat: Tariff threats cause a surge in imports as businesses scramble, the tariffs themselves curtail that surge temporarily, and once the dust settles, the imbalance remains. Meanwhile, job growth stagnated, and family finances suffered.
It is time to move past the political theater of “Liberation Day” and face the economic facts. We are taxing our own people and burdening our manufacturers all to erase a growing trade deficit that demonstrably benefits our nation. True economic strength comes from market-driven growth and competitive exports, not from an erratic trade agenda that leaves the American consumer holding the bag.
Marc Short is the board chairman of the Advancing American Freedom Foundation. Joel Griffith is a senior fellow at AAFF.