Yahoo! News: ‘Thank you, Mr. Tariff!’: The US just posted a massive 55% deficit cut

According to the latest U.S. International Trade in Goods and Services report from the Bureau of Economic Analysis, the goods and services deficit for January and February 2026 fell by $136.1 billion, or 54.8%, compared to the same period in 2025 (2).

A trade deficit occurs when a country imports more than it exports — and the U.S. has carried a massive trade deficit for decades.

The sharp narrowing in the first two months of the year was driven by a $62.6 billion (11.3%) year-over-year increase in exports, alongside a $73.5 billion (9.2%) decline in imports.

Tariffs are designed to discourage imports and reshape trade flows, so the trend isn't entirely unexpected.

But the comparison comes with important context.

The baseline period — early 2025 — coincided with a surge in imports, as firms rushed to bring in goods ahead of anticipated tariff announcements, potentially making the year-over-year drop appear more dramatic.

And on a sequential basis, the trend looks less clear-cut.

In February, the goods and services deficit widened by 4.9% from January to $57.3 billion. Exports rose 4.2% month over month to $314.8 billion, but imports increased slightly more — up 4.3% to $372.1 billion.

On one hand, they can protect domestic industries by making imported goods more expensive, giving local manufacturers a competitive edge. On the other hand, higher tariffs may result in increased costs for consumers, as companies pass on the extra expenses. This can lead to inflation, eroding household purchasing power and raising the cost of living.

There are also concerns that tariffs could draw retaliation from trading partners. But after October 2025 data showed America's trade deficit falling to its lowest level since 2009, some economists struck a more upbeat tone (3).

"The U.S. appears to be winning the trade war with tariffs curbing the imports of foreign goods, but America's trading partners are not holding any grudge as they continue to buy more American goods and services," said Chris Rupkey, chief economist at Fwdbonds.

Tariffs can also generate significant revenue for the federal government. According to the Brookings Institution, tariff revenue surged to $264 billion in 2025 — more than triple the amount in 2024 (4).

Trump has repeatedly floated the idea of returning some of that money to Americans in the form of a "tariff dividend," though the concept has yet to materialize.

And policy is still evolving. After scaling back sweeping tariffs to a 10% blanket rate — and later suggesting it could rise to 15% — the longer-term fiscal and economic impact remains uncertain.

Meanwhile, the question of who actually pays for tariffs may have a sobering answer.

Research from the Federal Reserve Bank of New York finds that nearly 90% of tariff costs are borne by U.S. firms and consumers, rather than foreign producers (5).

Data from the Yale Budget Lab points in a similar direction. Prices for imported consumer goods and durable goods rose about 1.5% in 2025 through January, both well above prior-year comparisons. Estimates suggest tariff pass-through to consumer prices ranges from roughly 46% to 86% for core goods and 51% to 115% for durables (6).

That pressure comes as geopolitical conflicts are also pushing energy prices higher, with $4 gas making headlines.

The good news? Throughout history, savvy investors have often found ways to shield themselves from inflation's bite — even when policy out of Washington falls short.

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