Washington’s long overdue realignment of terms of trade with the rest of the world has not interfered with expected behavioral relationships in an open and free market economy.

The GDP statistics for 2025, released February 20, 2026, show that U.S. imports of goods and services last year increased 2.8 percent, which is well in line with a 2.3 percent increase of American domestic demand. Similarly, a 1.8 percent increase in U.S. exports of goods and services were driven by external demand in a world economy estimated to have grown 3.3 percent in 2025.

Apart from that, American overseas sales have benefited from tariff changes, strong demand for its exports’ unmatched technology content and efforts by some of the major trade partners to produce better balanced bilateral trade accounts with the U.S.

All that has contributed to a substantial improvement in the U.S. trade balance. America’s runaway trade deficits are now down to an almost entirely cyclically determined trade gap.

Last year’s negative U.S. net exports (difference between exports and imports) of $1,065.5 trillion came in at 4.46 percent of GDP – virtually identical to 4.42 percent of GDP in 2024.

Locomotive USA

Those negative net exports of $1,065.5 trillion simply mean that the U.S. was buying more than it was selling to the rest of the world. One can, therefore, think of that as America’s net contribution to the growth of world economy.

It is important to emphasize that because countries with a relatively high economic growth and huge net export surpluses are boasting about their large contributions to the growth of world economy. Judging by the mainstream media reports of that falsehood, the rest of the world concurs.

Those media reports are ignoring the fact that huge trade surplus countries are a drag on global economy (again -- because they are selling more than they are buying from their trade partners). In fact, they are living off the rest of the world.

In economic theory, those are called beggar-thy-neighbor trade policies because they are aiming at enriching the country at the expense of other countries.

Christine Lagarde, the current president of the European Central Bank, made widely reported comments about that (cf. Financial Times and Spiegel) in March 2010 when she was the French finance minister. She criticized Germany for its large and systematic trade surpluses with the rest of Eurozone countries, urging Berlin to stimulate its domestic demand. That would have raised German imports from the rest of the monetary union and lowered the country’s dependence on its traditional model of export-driven economic growth.

The response of the then German chancellor Angela Merkel was negative. And that’s the way it is to this day. Last year, Germany’s trade surplus with the monetary union (Eurozone) was €144.3 billion ($170.3 billion). And that was 72 percent of German total trade surplus in 2025.

U.S. should get after large surplus runners

Back to the U.S. America’s trade deficits became a constantly neglected economic problem since the mid-1970s, even though it was clear that, at some point, they could create economic policy constraints and lead to national security issues.

The U.S. is now well past that point. Accumulation of trade deficits has negatively affected the dollar’s standing as a store of value, cutting its share in global currency reserves to 56.3 percent, and bringing the U.S. net foreign debt to $27.6 trillion at the end of September 2025 – a $3.1 trillion increase from the year earlier.

Now, the opposite is happening in countries running large and systematic trade surpluses with the U.S. like Germany, Japan and China. All of them have big and rapidly growing net international creditor positions.

Germany’s net international investments in September of last year stood at €3.5 trillion ($4.1 trillion), accounting for 79% of German GDP. For the same date, Japan reported a $3.7 trillion creditor position, an increase of $28.4 billion from June 2025. China, a comparatively late comer to this game, caught up with a net international investment position of $4 trillion last September, an increase of $239 billion over the previous three months.

Washington, therefore, is perfectly justified to insist on better balanced trade accounts with these countries. Last year, they ran a combined $339 billion trade surplus on their U.S. trades. That was nearly one-third of America’s total trade gap.

The fact that U.S. trade deficits with those countries declined last year between 8 percent (Japan) and 33 percent (China) shows that Washington’s trade policy is working, although Japan and Germany should do much more to cut their excessive surpluses on U.S. trades.

The U.S. trade policies have also confirmed an old axiom in economic theory that impediments to trade will force factors of production (labor and capital) to jump over trade barriers. According to preliminary data, the U.S. remained last year the world’s largest recipient of global foreign direct investments.