Trump’s tariffs fail to cut US trade deficit, IW report shows

The US trade deficit stood at $130 billion in August, a figure that has surpassed its level from two years prior, despite the implementation of President Trump's economic policies, according to a study by the German Economic Institute (IW) reported by Reuters. These policies, which included tax cuts, tariffs to revive domestic manufacturing, and efforts to attract AI-related investment, have yielded mixed results.

While GDP growth has remained robust and investment in artificial intelligence has been strong, job creation has lagged behind the previous administration and inflation has surpassed the Federal Reserve's 2% target.

The trade deficit's composition has also changed. The European Union's contribution to the deficit dropped to 7% from 20% in August 2024, while China's share decreased to 14% from 29%. Despite these shifts, the efforts to boost manufacturing have not been fully successful. Chinese and European investment inflows into the US fell by 8.2% to $248 billion in 2025, which is 18% below the average from 2015 to 2024.

Moreover, the US-Israeli conflict with Iran is exacerbating the country's fiscal situation. This conflict has led to an increase in public debt and has resulted in higher interest rates. Financial institutions are now questioning whether the US can sustain its debt of $40 trillion, adding to the economic challenges posed by the administration's policies.