President Donald Trump has repeatedly characterized the U.S. trade deficit as a “national emergency” and a threat to Americans’ “way of life” throughout his second term. This was the basis for his invocation of the International Emergency Economic Powers Act in April 2025, when he announced “Liberation Day” and implemented reciprocal tariffs on most of the world. (The Supreme Court did not concur with his assessment that it constituted an emergency.)
As Trump endeavors to reinstate his signature trade policy in response to his long-standing focus on trade imbalances, some analysts contend that he has mistaken America’s trade challenges for a different kind of crisis.
The U.S. trade deficit—which measures the value of a country’s imports exceeding its exports—was approximately $901 billion last year. This signifies that the U.S. is spending considerably more than it earns in international trade. However, according to Gita Gopinath, the former chief economist at the International Monetary Fund, it only becomes a crisis if one cannot afford to pay.
“U.S. trade deficits are large and need to be brought down. Reducing U.S. fiscal deficits is important. At the same time, there is no doubt in the US ability to pay the world and therefore no crisis,” Gita Gopinath, now a Harvard professor, stated in an X thread on Tuesday.
The wrong treatment
To balance its international accounts, America’s trade shortfalls must be offset by foreign investment in U.S. assets. The U.S. has maintained a trade deficit for decades but has never experienced a fiscal crisis stemming from this imbalance because international investors have consistently purchased U.S. assets, including government debt, real estate, and equities, throughout this period.
Should the U.S. lose the confidence of international investors, its foreign exchange reserves could dwindle, rendering the country unable to service its international debt. Gopinath explained that this scenario, known as a balance-of-payments crisis, would present a significantly more formidable challenge than a persistent trade deficit.
“The difference is similar to suffering from chronically high cholesterol versus having a heart attack,” she wrote, adding that the U.S. is currently experiencing “high cholesterol but not a heart attack.”
The last time the U.S. faced such a “heart attack” was in the early 1970s, when President Richard Nixon removed the U.S. from the gold standard. Following World War II, the Bretton Woods monetary system established the U.S. dollar as the world’s reserve currency, with its value pegged to gold at a fixed rate. Throughout the 1960s, the amount of dollars held abroad surpassed the U.S. gold reserves, making the country susceptible to a gold run and a loss of investor confidence. Attempts to salvage the system failed, and Nixon ultimately announced the end of dollar convertibility to gold in 1971.
Trump doubles down
Following the Supreme Court’s ruling that the majority of Trump’s tariffs were illegal, his administration has recharacterized the nation’s trade deficit as a balance-of-payments crisis. Hours after the justices announced their decision, Trump retaliated, vowing to implement tariffs of up to 15% across the board, authorized under Section 122 of the 1974 Trade Act. This provision permits presidents to impose tariffs for 150 days in response to “fundamental international payments problems,” a phrase Trump explicitly used in his announcement of the new temporary tariffs.
Economists, including Gopinath and the libertarian-leaning Cato Institute, have argued that the current U.S. trade deficit does not constitute a balance-of-payments crisis. To extend Gopinath’s analogy, the U.S. is presenting itself at the doctor’s office with symptoms of a heart attack when it actually needs to adjust its diet and perhaps take a statin.
Even Trump’s own legal team appeared to concede that the current situation does not represent a balance-of-payments crisis. Last year, during the initial legal challenges to the president’s emergency tariffs, the Justice Department argued in part that Section 122 tariffs were justified because they addressed such a crisis, they contended.
Another prominent economic figure, hedge fund billionaire Ray Dalio, founder of Bridgewater Associates, has frequently employed the “economic heart attack” metaphor for years. In September, he predicted that the U.S. would experience one in the coming decade, but not due to trade. Instead, he foresees the national debt inducing a financial collapse, exacerbated by Trump’s policies of tax cuts that far outweigh any tariff revenue generated (regardless of any refunds Trump may have to issue due to the Supreme Court ruling).
Even if Trump succeeds in maintaining tariffs, economists are skeptical that his stringent trade measures will significantly reduce the deficit. Nobel laureate Peter Navarro and Chad P. Bown at the Peterson Institute for International Economics have both argued that any tariff-induced decrease in imports is typically accompanied by a corresponding reduction in exports. This occurs because the increased demand for domestic production tends to divert resources away from export activities.
Both economists suggest that a trade deficit is best addressed through domestic fiscal policies, such as reducing government spending or increasing taxes to balance the national deficit. This approach would boost domestic savings and lessen reliance on foreign capital inflows. However, it appears unlikely that Trump will be more successful than previous presidents in reducing the national debt. His signature “One Big Beautiful Bill” policy package from last year could add anywhere from $1.7 trillion to $2.4 trillion to the deficit over the next 30 years, making a debt-induced heart attack, as prophesied by Dalio, increasingly probable.
Despite Trump’s bold assertions about the positive impact of tariffs—he recently claimed they had reduced the deficit by 78%—official data from his first year back in office indicate a minimal effect. The trade deficit last year was $2.1 billion less than in 2024, a reduction of just 0.4%, according to the Bureau of Economic Analysis announcement last week. As Gopinath suggested on X, it remains uncertain whether his new replacement tariffs will yield different results.
“A 150-day tariff cannot reduce persistent trade deficits and the U.S. is not having a heart attack,” she wrote.