Key takeaways

A year and a half into the U.S. trade war, export and import levels suggest a weariness on the part of trading partners, further adding to U.S. trade deficits.

The current strategy to rebalance global trade in favor of Washington has been slow to produce concrete results. The overall deficit has widened and the trade taxes imposed on U.S. companies are being passed along to customers, resulting in higher inflation.

Imports are surging once again, while exports have been falling since April’s peak.

The balance of trade for August hit $105.6 billion, the first time the trade deficit topped $100 billion since the 2025 pre-tariff surge.

That balance will pose a drag on gross domestic product, which we nevertheless expect to come in at a 3.5% annualized growth rate in the third quarter.

Ever since the trade war began with the announcement of sweeping tariffs on April 4, 2025, our trading partners have been looking for alternatives to the U.S., expanding their client base while the U.S. continues to look inward.

U.S. agriculture is one example. Tariffs have led to a significant downturn in the rural-based economy. And if diesel exports are banned in an attempt to drive down prices, as has been proposed, the policy will lead to higher prices after a temporary reprieve.

Because of this new approach to trade, the U.S. can no longer be counted on as the global purchaser of last resort. The large trading economies have simply moved on to find other, more reliable trading partners.

Consider Canada. As Prime Minister Mark Carney said in a recent interview with The New York Times and elsewhere, Canada is actively looking to extend its free-trade zone to the integrated states of the European Union and to join the EU as a security partner.

The U.S. trade war, he said, is having a real-world impact, just as it did in 2018 during a previous round of trade tensions.

While Canadian exports to non-U.S. markets have surged, Canadian exports to the U.S. have dropped from 75% to 62% of total exports since April 2025.

Carney is no stranger to protectionist trade and economic policies. He was governor of the Bank of England after Brexit, and he saw firsthand its impact on the UK economy. Now, as prime minister of Canada, he is looking to diversify its trade and strategic partnerships, particularly with Europe.

As with Brexit, there are reasons to be concerned about the U.S. withdrawal from the world economy.

Manufacturing jobs in both the U.S. and Canada would be at risk should trade ties between the U.S. and Canada continue to fracture.

Carney points out that, on average, 50% of the content in a Canadian-produced vehicle comes from the U.S. At the same time, Canada is far and away the biggest export market for U.S. cars.

In agriculture, Canada supplies 80% of potash that is essential for American farmers.

Should those ties be broken, the increase in shipping costs from faraway sources implies lower profits for the U.S. agricultural sector and higher grocery prices for U.S. consumers.

Exports

Import and export data is broken down into two major categories: goods and services.

While both are at risk, U.S. exports of goods have shown a pronounced drop since April 2026, while the export of services looks to be flattening.

But isn’t the U.S. a net exporter of petroleum?

Yes, but petroleum exports, at $26 billion, account for only 8.5% of total U.S. exports, and that share will most likely decline if and when energy prices stabilize.

Imports

Neither the tariffs nor the rhetoric directed at our trading partners seem to have had much effect on U.S. buying habits.

Imports of goods are reaching levels of the 2025 pre-tariff surge, with the increase in recent months seeming to be a function of importers taking out insurance on the ability of shipping to continue unimpeded.

But what are Americans buying?

Among the five categories of imports—food, industrial supplies, capital goods, automobiles and parts, and consumer goods—only imports of capital goods have grown this year compared with the same time period in previous years.

Imports of tech equipment

In the capital goods category, telecommunications equipment, semiconductors, electrical apparatus, computer accessories and computers constitute roughly 70% of recent imports.

As in the broader economy, technology now dominates the import landscape, highlighting the inconsistency in policy. If artificial intelligence is essential to productivity and economic growth, why impede the flow of goods needed to develop it?