(What’s Left of) Our Economy: That Last U.S. GDP Report Also Revealed Tariffs Helping to Curb the Trade Deficit
What's the endgame here?
What attracted the most attention about last Friday’s official report on U.S. economic growth adjusted for inflation was how surprisingly weak the sequential fourth quarter pace was.
At 1.42 percent at annual rates, this advance estimate of the expansion of real GDP (gross domestic product – the main measure of the economy’s size and how it changes) not only revealed a marked slowdown from that of the previous two quarters (4.30 percent in the third and 3.78 percent in the second). It badly trailed the estimates of the widely followed Atlanta Federal Reserve tracker (three percent even) and of many private sector economists. (See, e.g., here.)
As a result, full-year real 2025 growth was just 2.17 percent – considerably slower than the 2.80 percent pace of 2024.
Not that there weren’t big extenuating circumstances. According to the Commerce Department’s release, the federal government shutdown that lasted for about six weeks in October and November “subtracted about 1.0 percentage point from real GDP growth in the fourth quarter.”
Without the shutdown, therefore, fourth quarter after-inflation growth would have been 3.42 percent in annual price-adjusted terms, and 2025 full-year growth would have reached a more respectable 2.67 percent.
What attracted less attention was that the release on the gross domestic product (GDP – the main measure of the U.S. economy’s size and how it changes) confirmed previous data (revealed in the headline pre-inflation monthly numbers released by Washington) showing major progress in reducing the U.S. trade deficit during the tariff-heavy second Trump administration.
For starters, although the constant dollar goods and services trade deficit rose by 5.17 percent on year in 2025 (to $1.0860 trillion, a second straight all-time high), that rate of expansion was less than half that recorded in pre-tariff-y 2022 (11.61 percent). Given that economic growth was nearly as strong in 2025 as in 2024, that’s a big difference.
And the 2025 figures included a huge, tariff front-running first quarter sequential jump of 29.16 percent in the trade shortfall. The resulting trade gap of an annualized $1.3807 trillion was the highest of all time – easily surpassing the $1.1068 trillion it reached in the first quarter of 2022.
Further, that quarterly increase was the biggest since the deficit skyrocketed by 31.38 percent in the fourth quarter of 2020 – when the economy was recovering rapidly from the first wave of the pandemic. And aside from that Covid-influenced surge, it was the biggest on record in a data series going back to 2007. Indeed, it was nearly twice the 19.63 percent runner-up figure from the first quarter of 2014.
But by the fourth quarter, this annualized trade deficit had shrunk to $949.6 billion – the lowest such figure since the $934.1 billion figure of the fourth quarter of 2023.
A similar story emerges from looking at the overall price-adjusted trade deficit as a share of the total constant dollar economy. The 2025 level topped 2024’s by 4.55 percent versus 4.42 percent. And last year’s share was the highest since 2022’s 4.64 percent.
But again, as 2025 proceeded, the results …
What's the endgame here?
What attracted the most attention about last Friday’s official report on U.S. economic growth adjusted for inflation was how surprisingly weak the sequential fourth quarter pace was.
At 1.42 percent at annual rates, this advance estimate of the expansion of real GDP (gross domestic product – the main measure of the economy’s size and how it changes) not only revealed a marked slowdown from that of the previous two quarters (4.30 percent in the third and 3.78 percent in the second). It badly trailed the estimates of the widely followed Atlanta Federal Reserve tracker (three percent even) and of many private sector economists. (See, e.g., here.)
As a result, full-year real 2025 growth was just 2.17 percent – considerably slower than the 2.80 percent pace of 2024.
Not that there weren’t big extenuating circumstances. According to the Commerce Department’s release, the federal government shutdown that lasted for about six weeks in October and November “subtracted about 1.0 percentage point from real GDP growth in the fourth quarter.”
Without the shutdown, therefore, fourth quarter after-inflation growth would have been 3.42 percent in annual price-adjusted terms, and 2025 full-year growth would have reached a more respectable 2.67 percent.
What attracted less attention was that the release on the gross domestic product (GDP – the main measure of the U.S. economy’s size and how it changes) confirmed previous data (revealed in the headline pre-inflation monthly numbers released by Washington) showing major progress in reducing the U.S. trade deficit during the tariff-heavy second Trump administration.
For starters, although the constant dollar goods and services trade deficit rose by 5.17 percent on year in 2025 (to $1.0860 trillion, a second straight all-time high), that rate of expansion was less than half that recorded in pre-tariff-y 2022 (11.61 percent). Given that economic growth was nearly as strong in 2025 as in 2024, that’s a big difference.
And the 2025 figures included a huge, tariff front-running first quarter sequential jump of 29.16 percent in the trade shortfall. The resulting trade gap of an annualized $1.3807 trillion was the highest of all time – easily surpassing the $1.1068 trillion it reached in the first quarter of 2022.
Further, that quarterly increase was the biggest since the deficit skyrocketed by 31.38 percent in the fourth quarter of 2020 – when the economy was recovering rapidly from the first wave of the pandemic. And aside from that Covid-influenced surge, it was the biggest on record in a data series going back to 2007. Indeed, it was nearly twice the 19.63 percent runner-up figure from the first quarter of 2014.
But by the fourth quarter, this annualized trade deficit had shrunk to $949.6 billion – the lowest such figure since the $934.1 billion figure of the fourth quarter of 2023.
A similar story emerges from looking at the overall price-adjusted trade deficit as a share of the total constant dollar economy. The 2025 level topped 2024’s by 4.55 percent versus 4.42 percent. And last year’s share was the highest since 2022’s 4.64 percent.
But again, as 2025 proceeded, the results …
(What’s Left of) Our Economy: That Last U.S. GDP Report Also Revealed Tariffs Helping to Curb the Trade Deficit
What's the endgame here?
What attracted the most attention about last Friday’s official report on U.S. economic growth adjusted for inflation was how surprisingly weak the sequential fourth quarter pace was.
At 1.42 percent at annual rates, this advance estimate of the expansion of real GDP (gross domestic product – the main measure of the economy’s size and how it changes) not only revealed a marked slowdown from that of the previous two quarters (4.30 percent in the third and 3.78 percent in the second). It badly trailed the estimates of the widely followed Atlanta Federal Reserve tracker (three percent even) and of many private sector economists. (See, e.g., here.)
As a result, full-year real 2025 growth was just 2.17 percent – considerably slower than the 2.80 percent pace of 2024.
Not that there weren’t big extenuating circumstances. According to the Commerce Department’s release, the federal government shutdown that lasted for about six weeks in October and November “subtracted about 1.0 percentage point from real GDP growth in the fourth quarter.”
Without the shutdown, therefore, fourth quarter after-inflation growth would have been 3.42 percent in annual price-adjusted terms, and 2025 full-year growth would have reached a more respectable 2.67 percent.
What attracted less attention was that the release on the gross domestic product (GDP – the main measure of the U.S. economy’s size and how it changes) confirmed previous data (revealed in the headline pre-inflation monthly numbers released by Washington) showing major progress in reducing the U.S. trade deficit during the tariff-heavy second Trump administration.
For starters, although the constant dollar goods and services trade deficit rose by 5.17 percent on year in 2025 (to $1.0860 trillion, a second straight all-time high), that rate of expansion was less than half that recorded in pre-tariff-y 2022 (11.61 percent). Given that economic growth was nearly as strong in 2025 as in 2024, that’s a big difference.
And the 2025 figures included a huge, tariff front-running first quarter sequential jump of 29.16 percent in the trade shortfall. The resulting trade gap of an annualized $1.3807 trillion was the highest of all time – easily surpassing the $1.1068 trillion it reached in the first quarter of 2022.
Further, that quarterly increase was the biggest since the deficit skyrocketed by 31.38 percent in the fourth quarter of 2020 – when the economy was recovering rapidly from the first wave of the pandemic. And aside from that Covid-influenced surge, it was the biggest on record in a data series going back to 2007. Indeed, it was nearly twice the 19.63 percent runner-up figure from the first quarter of 2014.
But by the fourth quarter, this annualized trade deficit had shrunk to $949.6 billion – the lowest such figure since the $934.1 billion figure of the fourth quarter of 2023.
A similar story emerges from looking at the overall price-adjusted trade deficit as a share of the total constant dollar economy. The 2025 level topped 2024’s by 4.55 percent versus 4.42 percent. And last year’s share was the highest since 2022’s 4.64 percent.
But again, as 2025 proceeded, the results …
0 Comments
0 Shares
37 Views
0 Reviews
