EconoFACTS

February 19, 2026 | 09:03

U.S. Trade Deficit Ends Year On Sour Note

Economist

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Despite big tariff increases and a weaker dollar, the U.S. trade deficit rose in December and was little changed in 2025. The goods and services trade deficit jumped unexpectedly to a five-month high of $70.3 billion in the month from a revised $53.0 billion shortfall in November. Exports fell for a second straight month, by 1.7%, while imports rose for a second successive month, by 3.6%.

For all of 2025, the goods and services trade deficit declined a slight 0.2% to $901.5 billion from a record shortfall in 2024. Exports rose 6.2%, while imports grew 4.8%, led by surging purchases of advanced technology products to feed the AI boom. With no help from tariffs, the services surplus expanded 8.9% in the year. But this was mostly offset by a 2.1% increase in the larger goods deficit, which was helped by tariffs, notably via a shrinking deficit for motor vehicles and steel.

In 2025, the U.S. managed to shrink its trade deficits with China, Canada, Japan and much of Europe, but shortfalls with Mexico, Vietnam, and Taiwan increased sharply. The latter two countries, in particular, benefited from tariff exemptions on semiconductors and electronic products, such as smartphones and computers.

Despite the larger trade deficit in December, some improvement in the quarter suggests that net exports contributed positively to real GDP growth for a third straight quarter in Q4 (results due Friday).

Bottom Line: Tariffs and a cheaper currency are helping to rein in the still-large U.S. trade deficit, but a material improvement will likely await an expansion of domestic production capacity, particularly for high-tech products.

Table 1 - United States — Goods and Services Trade Balance

(US$ billions)

Source: BMO Economics, Haver Analytics