Understanding the Low October 2025 Trade Deficit
A closer look at trade data shows that fears of tariffs that never materialized—rather than actual tariffs—drove October’s trade deficit down.
The October 2025 trade deficit was quite low, falling significantly from September. Does that mean the tariffs are working?
This is an easy question to answer: no.
The fall October’s deficit relative to September’s is entirely due to swings in pharmaceutical imports and gold imports (and exports). Ironically, neither category has been subject to tariffs.
Fear of a pharmaceutical tariff led to large imports of pharmaceuticals in February and March 2025, ahead of the Liberation Day tariff rollout. Fear of a sectoral pharmaceutical tariff led to a similar surge in pharmaceutical imports in September 2025.
Once it was clear that most of the significant pharmaceutical importers would not face any tariffs, imports fell back down—and with big stockpiles of pharmaceuticals now in the United States, imports probably continued to fall in October.
Gold has similarly been subject to big swings based on tariff fears that did not materialize. Some of the gold now in the United States had moved abroad after Liberation Day, only to return with the lack of tariffs.
If gold and pharmaceuticals are removed from the October data, the October trade deficit was actually a bit bigger than the September deficit.
Is there any evidence that the tariffs are lowering the trade deficit?
That is a harder question to answer.
Look at the trade deficit net of trade in pharmaceuticals and gold. The monthly deficits in August, September, and October 2025 were all a bit smaller than the deficits in comparable months in 2024. That led President Donald Trump’s trade team to claim some success.
At the same time, the trade deficits in the first few months of 2025 were much bigger than the comparable months in 2024, suggesting that some of the current trade deficit’s fall is a function of inventories that were built up in anticipation of tariffs. Thus, the dip in imports will not last that much longer; stockpiles do run out.
Looking at the detailed trade data suggests a more nuanced picture.
Imports of autos—which have been heavily tariffed—are down. So, too, are overall auto sales, as U.S. auto production has not surged with the drop in imports. That same story holds for household durable goods: home appliances, furniture and the like. Even after accounting for the stockpiling ahead of the April 2025 tariffs, imports are now down. So, the tariffs are affecting certain product categories.
On the other hand, imports of semiconductors and computers are up substantially. Neither category has yet faced any real tariffs. The 232 sectoral investigation into semiconductors—which was just released—more or less excludes semiconductors imported for domestic use from any tariffs going forward. And building the data centers to support the current boom in artificial intelligence has required importing a lot of electronics.
Overall, any significant fall in the 2025 trade deficit, even with the tariffs, seems unlikely. But that will largely owe to an increase in the imports of products that generally have not been tariffed: pharmaceuticals, chips, and computers. Imports of some products that have been tariffed are set to fall.
Going forward, it will be important to see if imports rebound once stockpiles are exhausted, and how much of the promised refund checks flow into imported goods. Economic theory suggests that tariffs can reduce the trade deficit if their proceeds are used to reduce the budget deficit. In that case, tariffs basically work as a tax hike. At this stage, though, it seems unlikely that the tariffs will drive a significant fiscal adjustment—the refund checks are coming, and there is strong pressure to increase defense spending.