Surge of imports not a sign of weak demand, on the contrary, but imports deduct from GDP.
By Wolf Richter for WOLF STREET.
The tariff chaos continues with a constant barrage of announcements of new tariffs followed by announcements of pauses, exclusions, etc. Just this morning, Trump announced that tariffs on Mexican goods will be paused until April “for anything that falls under USMCA” (the NAFTA replacement). Yesterday, they announced that tariffs on autos from Canada and Mexico will be paused for one month. In addition, implementation of tariffs takes some time. And uncertainty and chaos reigns.
But months of tariff-talk has set off a huge wave of imports to front-run any tariffs, starting in December with a 15% year-over-year spike, before Trump was even President, and accelerated in January with a 25% year-over-year spike to an all-time record of $319 billion not seasonally adjusted, and $330 billion seasonally adjusted, according to the Census Bureau today.
Exploding imports are not a sign of a weak economy, or weak demand – on the contrary, normally. But in this case, they’re a sign of front-running the tariffs. Imports are subtracted from GDP in the GDP formula and therefor push down GDP growth. Exports are added to GDP and push up GDP growth. And this explosion of imports is going to weigh on GDP growth. But it will be followed by a drop in imports when the front-running ends, as imported goods fill warehouses in the US to the rafters.
Nearly half of the year-over-year increase of $63 billion of goods imports was driven by finished metal shapes. Computers, telecom equipment, and pharmaceutical products accounted for another third of the increase:
- Finished metal shapes: +1,030% YoY, +$31 billion YoY, to $34 billion. Accounted for 46% of the spike.
- Computers, computer accessories, telecom equipment: +54% YoY, +$11 billion YoY to $32 billion. Accounted for 17% of the spike.
- Pharmaceutical preparations: +55% YoY, +$10 billion YoY, to $28 billion. Accounted for 15% of the spike.
- Imports of gold: +293% YoY, +$2.7 billion YoY, to $3.8 billion. Accounted for 4% of total spike.
- Cellphones and other household goods: +26% YoY, +$2.2 billion YoY, to $10.8 billion. Accounted for 3% of total spike.
But motor vehicles and parts imports dropped. Lead times for motor vehicles are long, with long and global supply chains, and they cannot suddenly be produced and shipped in larger quantities. And so automakers were not able to front-run any tariffs, and imports in January fell by 6% year-over-year, or by $1 billion, to $38 billion.
Explosion of imports caused Goods & Services trade deficit to spike by 96% YoY.
Goods trade deficit worsened by 64% year-over-year, to a record worst level of $155 billion, not seasonally adjusted (blue in the chart below).
The goods and services trade deficit, which is what drags down GDP, nearly doubled, to $131 billion in January, from $67 billion a year ago.
In early 2022, imports also exploded as the supply chain chaos was getting resolved and backed-up goods started arriving in the US after the shortages. In March 2022, the trade deficit exploded to $102 billion, contributing to a negative GDP reading in Q1.
It also shows the scary dependence of the US economy on imports, after decades of rampant and reckless one-way globalization by Corporate America in search of cheap labor to fatten up their profit margins, and why this issue needs to be addressed with tariffs to change the math of producing in the US.
It’s not like no one is manufacturing cars in the US. All Teslas sold in the US are made in the US. Teslas are on top of the list of vehicles with the most US content. Hondas are right behind. Most Honda’s sold in the US are made in the US. Honda has already responded to the tariffs by announcing that it would also shift production of its next generation Civic Hybrid from Mexico to the US. All Japanese automakers have plants in the US, as do European automakers. Most Toyotas sold in the US are made in the US. Ford, GM, and Stellantis – with their US-sold brands relying more and more on production in Mexico – will likely also rethink some of their options. And that’s the purpose of tariffs. Or else they can pay.
But what they cannot do without watching their sales collapse is pass on the cost of the tariffs by raising prices on models that compete with vehicles that have a lot of US content and don’t face those costs. That’s why Ford is in such a panic – because it will have to eat most of those tariffs, if they’re ever implemented, and given the current chaos and lobbying, they may not get fully implemented.
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I agree with many of your articles but I am not seeing how tariffs will increase domestic production without raising prices. Also, we may never even see any tariffs as they appear to be a bluffing game for Trump at this point.
Prices are set by what buyers are willing to pay, not by what companies want. It doesn’t matter what price companies want to charge, and they always want to charge infinitely higher prices. If buyers don’t like the higher prices, they stop buying and sales collapse until price increases are rolled back.
We had a lot of inflation in recent years without new tariffs. Tariffs didn’t cause that inflation. Then inflation settled down some, but started accelerating again in the second half of 2024, without new tariffs.
Tariffs are a tax on profit margins, which is why companies that produce a lot overseas, such as Ford, are so panicked about tariffs, and why stocks are tanking, because tariffs hit corporate profit margins. Everyone knows that, even Wall Street.
Walmart already is pressuring its suppliers in China and elsewhere to cut prices and eat any potential tariffs because it knows it cannot pass them on without losing sales. That’s how it goes. Tariffs come out of profit margins of the importers. Whether or not they can pass on those costs, or any part of them, depends on what their buyers are willing to pay.
If there is a lot of inflation already without tariffs, it remains to be seen if there is more room for more inflation from tariffs, because higher prices can tank demand.
This is what happened in terms inflation during the last bout of tariffs: Nothing! Durable goods prices remained in DEFLATION (prices declining) throughout that time. Clip these charts out of your screen and tape them to your fridge:
Using Alfred Marshall’s “Cash Balances” – October 9, 2018:
“At the moment, one can safely say that the Fed’s plan for three more rate hikes in 2019 will not materialise. The US economy will go into a tailspin much before that.”
But it didn’t go into a tailspin in 2019. Annual real GDP growth was 2.6% which was well above the US 10-year average. So why do you cite this nonsense that was proven wrong within month of when it was said?
No nonsense. Stocks fell. Case closed.
Stocks soared in 2019. But they fell in 2018. They were in a steep decline in Oct 2018 when your buddy made this prediction about 2019. Here is one of my articles about the drop in October 2018.
https://wolfstreet.com/2018/10/27/ugly-october-stocks-is-preamble-homebuilder-banks-construction-fangman/
By the end of the year 2018, the S&P 500 was down 20%. But then the Fed pivoted from rate hikes and stocks took off in 2019.
Tariffs don’t always come completely out of profit margin, it depends on demand elasticity. If demand is elastic, suppliers eat the cost because raising prices kills sales. If demand is inelastic, consumers pay more since they have fewer alternatives and just have to eat the price increase. Companies can’t just pass on costs at will, but tariffs don’t hit all products the same way.
It’ll take a while to see how it all shakes out. That’s assuming Trump is serious and this isn’t just some negotiation tactic for political goals.
“Prices are set by what buyers are willing to pay, not by what companies want.” this is only true if the buyers are willing to pay a price that will still earn a profit for the company. if this can’t be achieved, then the company won’t make the product.
The US is full of companies that cannot make a profit. There are some big ones right now that are losing tons of money. Lots of companies lose lots of money for a long time.
Are we completely forgetting supply and demand here? Demand isn’t the only determinant of price. This is a very well studied topic in economics, one where the conclusion is never tariffs having no impact on prices.
The idea that consumers will eat none of the tariffs and retailers/producers will eat all of it is fanciful. And if these tariffs come into full force they will be much more significant than the tariffs last time round (which were already in a low inflation environment).
Look at the charts I posted about inflation. Tariffs did not raise prices last time. Companies tried, and their sales tanked, and they had to roll back those price increases.
The US is an economy of oversupply, not of scarcity. Gluts are the norm. That’s the most fundamental thing you need to understand about the US economy, or you will never understand anything about the US economy. There is nearly always more supply than demand. Which is why advertising and marketing even exist!!! To get people to buy stuff from YOU that they could buy anywhere because there is a total glut of it.
There was a brief period of scarcity during the pandemic, but that was historically unusual. Eggs are in scarcity due to the avian flu, but that’s a unique situation. When you go into a store, the shelves are normally full, and car lots are full, and online inventory is full to the rafters. So supply is in oversupply, that’s a ground rule in the US under normal conditions. And so companies HAVE TO STIMULATE DEMAND via low prices, advertising, and marketing, or else their sales will tank.
If Walmart uses their greeters to be anti administration… watch out administration!
Those greeters hold all the power. And they don’t even care anymore, nothing to lose.
the greeters are long gone. Walmart has become the ecommerce behemoth behind only Amazon, with annual online sales growth of 20-30% year-after year. It’s also the largest grocery store in the US. That’s what is working at Walmart.
“Prices are set by what buyers are willing to pay…”
Prices are set by what buyers are willing to BORROW. We’re in the biggest credit bubble mania in history. Car and house prices could have never reached their lofty heights without cheap and easy credit.
I agree and it’s been well documented here that people will pay whatever for things…at least until there assets collapse or they lose there jobs.
So while tariffs might not be inflationary in a vacuum they could still cause temporary inflation… Probably more likely to cause recession so maybe in the end they are deflationary lol
The world is turning and the leading edge of what is considered relevant changes constantly.
I agree with Andy Grove’s hypothesis that the loss of the manufacturing sector was a mortal mistake.
Good one!
Could DOEG and it’s investigations greatly reduce the amount of US Dollars washing around the world? What would this do to the bond market internationally?
Reduce dollars??? They’re about to increase deficit spending by $4.5 Trillion to give tax cuts to billionaires. Firing a few federal workers and finding a few million by doge is for selling the ruse to the bobbleheads watching Fox State media all day.
What I am saying is, are the cuts in USAID and other funding going overseas going to reduce the amount of Dollars in circulation outside the US. If so wouldn’t these countries need to borrow Dollars to function in markets using Dollars?
I see. The cuts were illegal since cutting congressional spending can only be done by acts is congress. And the USAID freeze is tied up in the courts. If the US isnt now a dictatorship, the funding will flow again. If the democracy is dead and the dollars don’t flow, they will probably be filled in by China and those countries will end up in China’s sphere of influence.
On top of NotHere’s points that the cuts are illegal, mostly held up in courts, and likely to reverse… the amount ‘saved’ is being grossly overstated. Even the amount they falsely claim to be saving is negligible compared to proposed tax breaks. But if you look at the actual savings, and then factor in the direct and indirect economic damage the cuts would cause, the DOGE cuts are very feasibly costing taxpayers in the long run.
I have been following DoGE feeds for quite some time and I fully support what they are doing
The liberal media is scared and saying that their saving estimates are over estimated
I don’t think so but even if they over over estimated then in this case saving of 50 billion than stated saving of 100 bullion is better than no savings
Not a fan of trump but I think he is doing a damn fine job
We needed someone in DC to shake the boat
Status quoers who became rich using tax payers monies are scared and screaming
Many billions of those USAID dollars were spent in the US buying from farmers, etc.
Why is it his supporters HAVE to watch his every speech?
If you told me to watch government crap when I was 25, I would have laughed at you.
I ran into this grocery clerk and he was going to tune into a football game just because big dumb dumb was there. And I’m like “well who do you want to win the game?”
He says “I couldn’t care less about the game, I hope they do not even play it.”
I’m like “wth?”
Don’t these people have lives?
Because his supporters who thought that American dream has been long dead now can see that there is a potus when cares about them
There is a potus who wants to bring jobs back to usa
There is a potus who hates wars
There is a potus who is putting Americans first
There is a reason trump came back to power painting all of usa red
People like me who made obscene gains in asset markets are not liking him 😒 but I can unlock why others like him
“They’re about to increase deficit spending by $4.5 Trillion to give tax cuts to billionaires”
They are not spending 4.5 trillion on tax cuts. They are making the current tax regime permanent. The 4.5 trillion is a talking point based on CBO scoring which always assumes that change to tax rates and tax take have no impact on taxpayer behavior. Looking back over the years to when the current rules took effect, I would guess that federal income did not plunge by 4.5 trillion.
You can argue endlessly about this. For myself, the current tax regime has been a great positive and I don’t consider myself rich. One of the best things about it is that for most tax payers ,tax filing has become vastly simplified. An end to the current rules would result in a tax increase for me and an increase in financial pointless
engineering
I had been planning things around the expiry of the current rules. That plan involved reducing my reportable income and reducing my non-deductible expenses while increasing deductible expenses. Now I won’t bother.
The tax cuts you reference are for people in all brackets, not just billionaires. And they are only “cuts” in the oddball CBO rules setting, as most of them are part of current tax law, and the proposed additional cuts are heavily oriented toward the middle and working classes (tipped income, social security recipients). And some of the current tax law that Democrats (and blue state Republicans) would like to see eliminated (SALT tax deduction limits) benefit billionaires to a massive extent, much more than the 2017 tax laws, 90% of that proposed policy change would accrue to the top 10% of Federal tax payers. So let’s be a little less “talk pointy” with the “billionaires tax cuts” stuff unless people making 250K are billionaires to you.
DOGE,
imagine your tweenager, with a history of psycosis
rummaging through your personal papers
I won’t go down the list, but there’s lots of things I (potentially) like about tariffs.
But here’s the thing… Outside of a handful of companies/industries that are swimming in cash flow, how can we onshore manufacturing in a meaningful way with all of this uncertainty?
Who in their right mind would want to go out and borrow a bunch of money to try and open a factory and hire all sorts of new people, only to have the tariffs vanish three or six months (or or 1 to 2 years, even) down the road?
In the meantime, prices generally will go up, but without meaningful job creation or domestic production.
Can’t imagine anybody views Trump as a model of stability or consistency, so I just don’t get it…
It’s already happening. Honda said that it would move production of its next-gen Civic hybrid from Mexico to the US. It already builds most of its US vehicles in the US. GM is rethinking its location options as well, that already came out. Ford is likely too. Apple announced it would shift manufacturing of its data-center/AI servers to the US. We’ve already seen a huge surge in factory construction in the US pre-dating the tariffs, focused on key technologies, such as semiconductors, EV and EV-battery manufacturing, electrical equipment and components, computers, etc.
Granted, all this takes time. It’s impossible to reverse overnight four decades of rampant globalization. It will take many years. But you have to start somewhere.
https://wolfstreet.com/2025/02/24/apple-announces-server-manufacturing-plant-in-houston-adding-weight-to-eyepopping-us-factory-construction-boom/
American companies are looking at 4 years of possible disruption and tariffs. Some are getting ahead of this and also loading up on the products and parts to tide them over till they can get production up and going. Just the threat of these tariffs will slow down or stop altogether foreign factory investments.
Agreed, but some of those companies are the textbook examples of having easy access to cash flow.
And as you point out, there have been multiple catalysts driving more domestic manufacturing in recent years.
“ Those investments in US high-tech manufacturing would be a far better use of cash than incinerating this cash on share buybacks.
Part of the purpose of this big-kahuna announcement was obviously a publicity stunt with the Trump administration.
But the rethink about manufacturing in the US is real.
The pandemic-era supply-chain chaos and the strategic problems with China triggered a corporate rethink about offshoring manufacturing, especially with regards to China.”
My point is that, unless a company was already on the fence, these on again, off again tariffs are going to have a difficult time driving major decisions for most businesses outside of cash rich tech companies and auto/auto parts manufacturers.
Would you be willing to bet your future on whether or not the tariffs will be in place a year or two or three years from now? And if so, that they would look substantially like the ones that are being talked about today?
I really like the idea of automation making more things more possible, but I just see the inconsistency making it really hard to make existential business decisions for most companies.
They certainly say that but never will. Trump changes his mind 5 times a day. Good luck planning business around his twits.
That type of chaos and on-and-off uncertainty is a huge problem for business decision makers and planners.
But they can vastly reduce the uncertainty be shifting production to the US. Which is the purpose.
So inventory amounts have soared. The inventory carrying costs for most US manufacturers typically is around 2.5% per month, a significant value with the extra inventory on hand. This inventory carrying costs won’t be tied to the supplier of these parts but will be either eaten by the manufacturer or passed on to the consumer. If it is eaten by the American manufacturer, you will see less tax revenue, less shareholder value and less capital purchases. In other words, less US wealth. If it is passed on to consumers, then it will result in higher inflation. My friend is in the business of selling to Walmart and Walmart already squeezes their suppliers tremendously. I doubt there is more blood to squeeze out of their suppliers to make up these tariff costs. Even if the tariffs are not implemented, companies are still paying these carrying costs and paying extra insurance on these goods. Not only that, they have to implement pricing to cover these costs and potential additional tariff costs of up to 25% of some of their parts should tariffs be implemented. And with foreign markets dwindling, their sales will be lower. Will this result in layoffs, lower production and lower profits? Interesting times indeed!
It’s wild that somehow, by taxing imports, we are going to manufacture things back in the US where labor and raw materials put costs at 3x import costs, but the consumer isn’t going to pay a dime more because tariffs don’t increase prices? That’s some very longest of long run wishful thinking.
And say the companies lay off employees to make up the loss in profits? That’s being priced into the market as well. If the economics don’t make sense to produce in the US, then plans is just plans. Don’t forget the huge taxpayer incentives also funding those initiatives.
The US is the second largest manufacturing country by output in the world, behind China, and larger than the next three combined (Japan, Germany, India). So forget this nonsense BS that no one is manufacturing in the US and that no one can. The problem is that the US had been by far #1, and that it has now become critically depending on China and other countries that can, and did strangle, the US economy, and if you don’t see that, you need to take your blinders off. And in terms of prices, what you said is just nonsense.
Imports exploded because the COMEX is currently moving tons of gold, silver and copper from London and Switzerland to the USA. For whatever reasons…
Imports of nonmonetary gold increased by $2.7 billion YoY, to $3.8 billion total imports in Jan. Accounted for just 4% of the total year-over-year spike of $63 billion.
There’s also some gold in “finished metal shapes.”
Imports from Switzerland run normally at about $5 billion a month. In January they were $24 billion, so about $19 billion higher than normal. The portion of those $19 billion in imports from Switzerland that was gold would also include some of the gold already listed as $3.8 billion in nonmonetary gold. So the portion of finished metal shapes that was gold is a lot smaller than the total.
Did trumps first term tariffs have any affect on manufacturing job growth ? Did some companies raise prices ?
1. Automation has been going on for decades and continues to go on. Factory jobs are now far fewer and far more qualified, and they include tech jobs.
2. Yes, some companies raised prices and then their sales tanked because consumers didn’t like getting screwed and refused to buy, and then companies rolled back those price increases to stay in business. It’s competitive out there. Everyone has similar stuff, and price makes a difference.
Great analysis and commentary. Makes me wonder who’s going to construct all these factories and what their stock symbol is… plus the robots, and supporting industries like power, supply chains, etc, etc?
Wolf is going to move his Wolf Street Enterprises across the border to Mexico so he can get away with paying himself (Mexican) minimum wage.
🇲🇽 🍹 😁
I think that the declensions of the Roman language are an appropriate response to your post.
Still waiting for that Fox-con factory in Wisconsin promised to Trump first Term.
Look, take all this CEO running to Trump to kiss the ring with a grain of salt. Right now it is a competition to see who could go to Trump and throw out the biggest investment number but you know there is a lot of bull st involved. Right now looks like Apples 500 billion is tops. Let’s see if somebody tries to beat it.
Apple’s coming factory in Houston is real, but it’s only a small portion of the $500 billion.
I usually agree with most of what Wolf writes but I mostly disagree with his views on tariffs.
Yes, consumers set prices to some extent. But most companies simply don’t have the profit margins to absorb 25% tariffs. Just because there are some zombie companies in a few sectors (mostly meme stock US companies) who haven’t ever made a profit, it would be wrong to assume that is the norm.
While the US is a huge market, it’s not as if it’s the only market. Here in Canada, it maybe more expensive to sell our products in other markets rather than just across the border. However when you add in a 25% tariff, those more distant markets become more attractive.
I think Wolf is only writing about the positive (for the US) aspects of tariffs and not considering any of the negatives. The trade with between Canada and the US is almost balanced. Sure some changes are needed – for example most Canadians would love to get rid of our supply management in dairy.
A shrewd person could demand that Canada open up our dairy sector or face tariffs. This would give our wimpy politicians the will to finally stop catering to Quebec (the province the most benefits from supply management). We will soon be getting a new Prime Minster, our current anti business PM will soon be gone (good riddance). Most Canadians support developing our natural resources – what a great opportunity for US companies.
Or the US can look at international trade as a zero sum process. Will Canada be hurt more than the US if you do – absolutely. But international trade isn’t a zero sum game, both sides can come out ahead.
1. “But most companies simply don’t have the profit margins to absorb 25% tariffs.”
It’s not 25% of their total profit margins, it’s 25% of the cost at the factory of the imported good. If Walmart buys a container of T-shirts and pays the factory $1 per T-shirt, a 25% tariff = 25 cents. So if Walmart sells that T-shirt for $9.99 in the US, the cost of the tariffs are still 25 cents. and it can either eat the cost or charge $10.24 for the T-shirt.
You need to read this, it explains how tariffs actually work:
https://wolfstreet.com/2025/01/13/some-basics-about-u-s-tariffs-and-what-trumps-new-economic-team-said-about-tariffs/
Part of the reason why people get riled up about tariffs is because they don’t know what tariffs actually apply to — it’s the cost at the foreign factory, not retail price in the US.
2. Lots of Canadians, like you, are pissed off about the tariffs, but if the tariffs were really bad for the US and US consumers, you and other Canadians would rejoice. But you admit that tariffs are bad for Canadian exporters. Tariffs are rough on countries with which the US has a big trade deficit. They’re not rough on the US. That’s why all foreigners are pissed off about those tariffs. But you know, it’s our trade deficit that needs to be fixed. And so yes, it’s going to hurt producers in those other countries that generate that trade deficit. Get used to it.
I wonder about the social costs as a result of the “Free Trade” agreements signed in the past. I lived in a town that was decimated when NAFTA came into being.
The number of workers who lost food paying jobs , suffered permanent
financial distress and wound up needing
government support far exceeded the savings from cheaper goods from Mexico
and Canada.
Last time we had tariffs production moved from China to Vietnam, not the US. What makes you believe this time is different? Thanks
reciprocal tariffs. Coming in April.
I don’t claim to be a genius about this stuff, so bear with me…
I understand using tariffs to help offset things when we buy cheap stuff made overseas and we have people here without jobs and they could make that stuff here if the playing field was level.
So, manufacturers now say they’re moving manufacturing back to the US.
Two questions: Doesn’t that take time? It’s not like you can stand up a factory overnight. And, who exactly is going to work in these factories? The unemployment rate is 4% today. I assume there are underemployed people out there who would take these jobs, but then what about the jobs they are leaving behind?
1. What is this defeatist attitude? If it takes a couple of years to get a plant up and running it’s not worth doing? Has crypto, with its overnight action, washed out your brain entirely?
2. AUTOMATION. Factories today are highly automated requiring far fewer people, and those they do have are highly qualified, including lots of tech people.
I have no idea why people make up with these BS reason why manufacturing in the US is not worth it. The US is already the #2 manufacture by output in the world, bigger than the next three combined, and only behind China. The problem is that the US is dependent on China for lots of stuff.
What I wrote was referencing Canada/US trade. You seem to be confusing Canada with China, but that’s understandable, your President is doing the same thing. Nothing that Canada sells to the US resembles the market for t-shirts from China.
The US does not run a big trade deficit with the US, in fact the trade deficit is one of the smallest as a percentage of total trade.
I honestly can’t believe you wrote this “if the tariffs were really bad for the US and US consumers, you and other Canadians would rejoice”. You have no idea how insulting to Canadians that statement is. I have NEVER (prior to the current tariff dispute) encountered a Canadian who would think like that.
Quit insulting the US and our President. That would be a good place to start.
The example I cited of the 25% tariff on T-shirts was to explain to you goofball that the 25% tariff does NOT get applied to the retail price in the US ($9.99), and does NOT raise the retail price by 25%, but it gets applied to the cost at the origin ($1), so the tariff amounts to 25 cents on that T-shirt. That’s a hugely important concept that you got wrong.
I see the argument that in the past tariffs didn’t cause inflation because consumers balked at the price increases so they didn’t stick.
The thing is, history doesn’t repeat, it rhymes…
If consumers were balking at price increases, we wouldn’t have inflation. If there was an over supply of goods and services chasing a limited amount of demand, prices would be going down, not up.
There’s lots of nuance and gray area here, and tariffs may still be the best long-term solution, but it’s definitely not a simple black-and-white or good/bad proposition.