Chart of the Week: America’s current account woes

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Good morning. US trade data through the second quarter of 2025 shows that tariffs are not doing much to ease the current account deficit (the surplus of US spending abroad over foreign spending at home). The deficit in goods, specifically, was only a bit lower than the average level over the past five years. A tariff-induced, frontloaded imports surge pushed the deficit to 5.9 per cent of GDP in the first quarter, but by the end of June it had slipped back to 3.3 per cent, not far off from its level a year before. 

Tim Baker at Deutsche Bank argues the US’s larger current account deficit relative to other major economies reflects an expensive dollar. But President Donald Trump’s crusade to weaken the dollar and reduce the US’s trade deficit could be a double-edged sword.

“The Trump administration’s effort to narrow the US trade deficit means fewer dollars will flow overseas, reducing the need for those funds to be recycled back into US securities,” notes Elias Haddad at Brown Brothers Harriman. Net portfolio inflows, which have come in at nearly 2 per cent of GDP in the past year, have helped fund the current account deficit, Baker notes.

If the dollar weakens, whether through falling confidence in it or as a result of policy, does foreign capital keep flowing into the US, and what does that imply for the current account? Email us your thoughts: unhedged@ft.com

This will be Unhedged’s last Chart of the Week’ for 2025. Happy holidays to all — we’ll be back on Saturday, January 10.

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