The Bureau of Economic Analysis (BEA) just released its monthly report on international trade in goods and services for August 2025. Based on the news coverage, it would seem that the 23.8 percent decline in the trade deficit was the most important takeaway. And this decline is surely viewed as a positive sign for the economy by the president.
In reality, the report is a bearish sign for the U.S. Exclusively focusing on the trade deficit obscures the more important economic trends revealed in this report that bode ill for the economy. According to the report,
- Real exports of goods decreased $0.6 billion, or 0.4 percent, to $145.5 billion, compared to a 0.2 percent decrease in nominal exports.
- Real imports of goods decreased $17.7 billion, or 7.2 percent, to $229.1 billion, compared to a 6.6 percent decrease in nominal imports.
In other words, adjusted for inflation, U.S. businesses sold fewer goods to overseas customers in August. Further, the 7.2 percent decline in inflation adjusted imports means that U.S. households had less access to lower-priced goods and U.S. businesses had less access to lower-cost resources.
Making the news worse, these trends have been persisting for a while now – the total volume of exports and imports, adjusted for inflation, also declined over the past three months. If these trends persist, then consumers will continue to face rising costs, and business will face growing profitability headwinds. All of this is economically troubling.
President Trump views this report as an economic positive because he exclusively focuses on the trade deficit. Under his theory, the trade deficit means that other countries are exploiting the U.S. Such assertions are based on a misunderstanding of the benefits enabled by growing imports. In fact, as the figure below demonstrates, growing imports are a sign that the economy is doing well while declining imports are a sign of a stagnating economy.
The figure compares the year-over-year change in the economy (GDP) to the year-over-year change in the value of imports between 1981 and 2025 – nearly a half-century of data. Throughout this entire period there is a clear close connection between imports and economic growth, and it is not the pessimistic story that President Trump tells.
Instead, economic growth and import growth are positively related. When the value of imports is growing, the economy is growing. Alternatively, when the value of imports is declining, the economy is also declining.
With this understanding, it is clear that the latest international trade report was quite bearish. The value of imports, not to mention the value of exports, has been stagnant for much of 2025. The trade deficit has declined because imports have declined by more than exports, but this is not a positive development. It is a worrisome sign that President Trump’s tariffs are taking a toll on the economy. Without a change in policy, the implications for 2026 are troubling indeed.
Wayne Winegarden, Ph.D., is a Sr. Fellow in Business and Economics and Director of the Center for Medical Economics and Innovation at the Pacific Research Institute.
