Businesses continue to import record level of goods ahead of wide ranging tariffs

The trade deficit remained at record levels in February and is likely to drag on the economy, as businesses continued to import large quantities of supplies ahead of wide-ranging tariffs implemented by the Trump administration.

The deficit of $122.7 billion in February was a slight narrowing of 6% from January, the Census Bureau reported Thursday. Year-to-date, the deficit is 86% higher than the same period in 2024. The US imported $328.9 billion in goods in February, only a slight decline of 0.2% from the month before. 

The surge in imports at the beginning of the year could result in negative growth in the first quarter since the trade deficit is subtracted from growth. But that is not likely to be repeated in the second quarter as Trump is imposing much higher tariffs than expected. Instead, it could lead to all trade declining as businesses try to figure out the impact. 

“We have to be braced to the very realistic prospect that we actually get a negative first quarter GDP print this year,” said James Knightley, Chief International Economist at ING.

“It’s definitely going to have a dramatic impact on the growth figures,” agreed Shannon Grein, economist at Wells Fargo. She predicts negative growth in the first quarter, with trade data putting a 5 percentage point drag on GDP assuming no changes in March. “It’s huge,” she said. 

The import surge are a result of business decisions made at a time of uncertainty. That means if the tariffs kick in and import costs rise, businesses will import less or pass on the increased costs to customers. If the price of goods rise significantly though, consumer demand could drop, looping back to businesses producing and importing less. The tariff deficit would shrink, but the economy would be worse off. 

“If it is because of underlying, weak domestic demand, then that is not such a good story,” Knightley said. “You want a strong, vibrant US consumer sector, and if we’ve not got that, we have some real concerns about where the US economy is heading.” 

While the fundamentals of the economy remain strong in the US, the longer the tariffs are in place and the broader they are, “the higher risk of recession, stagflationary impulse is,” Grein said. 

Since his inauguration in January, Trump has announced a deluge of tariffs against the country’s most important partners, implemented at varying degrees and in some cases called off at the last minute. 

On April 2, Trump announced “universal” and “reciprocal” tariffs of 10% on all countries effective from Saturday midnight, sending global markets diving. Some trading partners face even higher individualized reciprocal tariffs from April 9, such as a total rate of 54% for China, 46% for Vietnam, and 20% for the European Union. Canadian and Mexican goods separately continue to face a 25% tariff on goods that are not compliant with USMCA. Automobiles have been subject to 25% tariffs since Thursday. 

The February deficit was in line with the median estimate of economists surveyed by Bloomberg. But the expanding list of countries and goods targeted, amounting to 80% of US imports according to Wells Fargo estimates, and the uncertainty over tariffs have kept businesses from being able to plan ahead. 

“I’m going to be honest with you, I don’t know that we’ve been able to really come up with a financial plan, an idea of how much this is really going to hurt, because everything is changing so quickly,” Traci Tapani, co-president of Wyoming Machine, Inc. said. 

She and her sister own a sheet metal fabrication company that employs around 45 people in the small city of Stacy in Minnesota. They produce custom parts and components from sheets of steel, aluminum and stainless steel for other manufacturers.

This year they had planned a big purchase: a $250,000 piece of equipment that would automate the loading and unloading of flat sheet metal onto their laser cutting machine. It would have freed up the skilled worker who currently does that task to be reassigned to a different role and improve productivity.  

But the year that began with economic uncertainty has only continued since. Steel and aluminum imports have faced tariffs of 25% for several weeks now. Tapani has noticed the price of steel and aluminum has risen since the announcement. 

“We have decided to hold off on that purchase because it seems too risky right now to make that investment when everything is up in the air and chaotic,” she said. 

She is concerned that reciprocal tariffs could dampen export demand for US-based manufacturers. “If my customers can’t effectively export the products that they’re building and that I’m supplying components for, that ultimately affects my business.”

Going forward, economists will be looking for the “hangover effects” of the early year import surge and the impact of the tariffs. Questions remain on whether the tariffs will be postponed, expanded, negotiated or cut short.

“Even though [Wednesday’s announcement] brought some clarity, it didn’t really bring all the certainty that people were looking for,” Grein noted.