Trump’s tariffs were supposed to reduce the trade deficit, but it is now the largest since Liberation Day.

“This is a national emergency that threatens our security and our way of life,” he said at the time. “This is a very big threat to our country.”

But 17 months later, import taxes imposed by the administration have not made up for that deficit at all. In fact, the trade deficit is now the largest since Trump implemented the tariffs, and economists are casting a cold shoulder on the idea that a growing trade gap even poses a threat.

The trade deficit increased 13.7% to $105.6 billion from July to August, according to the Bureau of Economic Analysis, the highest level since March 2025, at $140 billion. While imports rose 4.3% to $420.8 billion, exports increased, but at a slower pace, increasing 2.2% to $205.7 billion.

Experts suggest the growing deficit is largely due to the AI ​​boom, which has created massive demand for foreign computer hardware in the United States, thereby increasing imports. Demand for AI alone added $200 billion to the U.S. trade deficit in April, according to the Minneapolis Federal Reserve.

“The U.S. economy is doing a bunch of things that other countries can’t do; one of them is… this AI boom,” said Tarek Hassan, an economics professor at Boston University. Fortune. “And because of the AI ​​boom, foreigners still want to invest in the United States, which is a good thing. »

Tariffs have been a cornerstone of Trump’s second administration, and the president justified the levies with promises of job creation in American manufacturing, as well as a financial windfall to redistribute to the American people – but none of these promises came to fruition.

For Trump, the trade deficit was representative of other countries taking advantage of the United States or American wealth leaving the country, and that protectionist measures were the only way to restore American trade dominance.

“Imports of capital goods remain at a record high, further evidence that President Trump’s economic policies have led to a manufacturing renaissance.” White House spokesperson Taylor Rogers said Fortune in a statement. “The President’s efforts to reindustrialize the United States continue to bear fruit as trillions of dollars in manufacturing investments materialize. »

But economists see things differently. They argue that Trump’s heavy-handed tariff approach, meant to reduce the deficit, was actually partly responsible for widening it. They also believe that Trump’s insistence that the gap is a negative economic indicator actually ignores evidence of the resilience of the U.S. economy.

Why Trump’s tariffs backfired

The ineffectiveness of Trump’s tariffs in closing the trade deficit has less to do with the magnitude of the tariffs than with their ever-fluctuating nature. For example, tariffs on China rose to 145% after Liberation Day, but have since fallen to around 30% following the Supreme Court’s ruling against tariffs imposed under the International Emergency Economic Powers Act (IEEPA) and a series of trade deals with the country. While companies often seek to adjust their supply chain in the face of tariffs, this hasn’t really happened because the business landscape is too uncertain to make long-term adjustments. As a result, American companies remain heavily dependent on foreign products.

“There is so much volatility that, fundamentally, companies are not going to change their behavior,” Hassan said. “They’ll just adjust the prices and move on, and that’s why this pricing regime has proven to be somewhat ineffective.”

Donald Boudreaux, an economics professor at George Mason University, explained that the AI ​​boom isn’t just fueling demand for foreign intermediate goods like computer hardware parts. It also sparked economic optimism among U.S. businesses about future productivity increases, pushing importers to continue buying products subject to tariffs, despite higher costs.

“American businesses need to be interested in the American economy and their expectations for the future of the American economy, and they are optimistic,” Boudreaux said. Fortune. “They say, ‘Even if we have to pay higher prices for steel, higher prices for machine parts, higher prices for everything we import from abroad, those higher prices are not high enough to deter us from supplying these inputs that we think we need to meet future demands for our products.’ »

Be careful what you wish for

Ultimately, it’s the continued investment in the United States by other countries that makes the trade deficit a good thing in Boudreaux’s eyes. While economists like Peter Navarro believe that reducing the deficit would prevent the collapse of the U.S. manufacturing sector, Boudreaux argues that by receiving more foreign goods, dollars generally flow back to the United States through global investments in U.S. stocks, thereby supporting the U.S. economy.

“President Trump believes, in his own words and in those of the administration, that this is unambiguously bad news,” Boudreaux said. “But in my opinion, it is, I would say, unambiguously good news. It basically speaks to the good health of the American economy, not to any problem in the American economy.”

If Trump is serious about reducing the trade deficit, Hassan said, he should be careful what he wishes for. As foreign investors continue to pump dollars into the United States, particularly through Treasury bonds, they are essentially providing cheap credit to Americans.

But if the trade deficit narrowed and exports exceeded imports, foreign investment would also decline, Hassan suggested. Bond yields would rise and financing the growing national debt would become even more difficult.

“This will be a crisis where the trade deficit will close because foreigners are not willing to extend more credit to the United States,” Hassan said. “Complaining about the trade deficit is like complaining that the bank keeps giving us all this cheap credit.”