Is a shrinking trade deficit about to lift GDP?

The US trade deficit fell sharply in August, as newly released information showed imports falling in the wake of President Donald Trump’s broad tariff policies.

The trade deficit fell by about 24% in August, according to data from the Bureau of Economic Analysis. The late report showed that the difference between imports and exports narrowed by $18.6 billion to a total of $59.6 billion.

The Trump administration imposed a series of new tariffs that month, and imports fell by more than 5% compared to the July reading, while exports increased slightly.

The August trade data, which was delayed due to the government shutdown, follows the July reading that showed the trade deficit widening due to higher imports ahead of the August tariff deadline.

Trade data can indicate the strength of GDP

An improved trade deficit could lead to a better GDP result in the third quarter. In fact, the Federal Reserve Bank of Atlanta has already updated its GDP forecast tool to reflect the change in exports, raising its third-quarter GDP forecast to 4.2%.

The trade deficit has already contributed to swinging GDP readings this year. After Trump announced his initial tariff plans, many buyers rushed to get ahead of the import taxes, which drove the trade deficit higher in the first quarter and thus led to a 0.6% contraction in economic growth at the start of the year. However, as imports declined due to higher tariffs, GDP increased to 3.8% in the second quarter.

While the trade deficit narrowed in August, there is still a way to go to offset the increase in imports from earlier this year. From the beginning of the year through August, the US trade deficit reached $142.5 billion, which is 25% higher than the same period in 2024.

Imports from Switzerland and Canada decline amid rising tariff rates

The data also showed a shrinking trade deficit with countries where the Trump administration imposed higher tariffs. Canada, which faces a 35% tariff on products not covered by the U.S.-Mexico-Canada trade agreement, saw its imports to the U.S. fall by $1.7 billion. US exports to Canada increased, which helped reduce the trade deficit with Canada to $3 billion.

Meanwhile, Swiss imports to the US fell by $6.8 billion in August after Trump imposed tariffs on the watch and chocolate-producing country by 39%. These tariffs were recently reduced to 15% after negotiations between the two sides.