The U.S. trade deficit narrowed sharply in October to $29.4 billion, a 39% decrease from the previous month and the lowest level recorded since 2009. CNBC reported that according to the Commerce Department, this unexpected decline follows a volatile year for global trade impacted by the Trump administration’s “Liberation Day” tariffs, which were initiated in April 2025.  The October deficit in goods was $59.14 billion, down 24.5% from September, the Bureau of Economic Analysis said on Thursday.

Key data from the report includes: 

• Exports: Increased by 2.6%.
• Imports: Slipped by 3.2%.
• Historical Context: This is the smallest trade shortfall since the second quarter of 2009, when the U.S. was emerging from the Great Recession.  

The decline in the deficit was driven in part by American imports falling in October

While economists and policymakers initially feared that these steep levies would invite retaliation and slow global commerce, the latest figures suggest a strong market for U.S. products. This trend also reflects a period in which the administration moderated some of its most severe tariff threats, contributing to a more stable trade environment.

The year-to-date deficit remains 7.7% above 2024 levels, though the narrowing trend signals positive momentum.      

October 2025 Trade Deficit Highlights:

• Historic Decline: Monthly US trade deficit in goods and services plunged 39.1% in October
• Lowest Since Financial Crisis: Deficit reached its smallest level since June 2009
• Record Bilateral Deficits: Individual deficits with Mexico, Thailand, and Taiwan hit all-time highs
• Record Bilateral Surpluses: Individual surpluses with Switzerland, United Kingdom, and Brazil reached record levels

The decelerating trade imbalance “will provide a much-needed boost for fourth quarter economic growth that has been hit hard by the federal government shutdown,” noted Chris Rupkey, chief economist at Fwdbonds.

“The US appears to be winning the trade war with tariffs curbing imports of foreign goods, but America’s trading partners are not holding grudges as they continue purchasing more American goods and services,” he observed. “So far, forecasts for a US recession are proving unfounded as productivity continues supporting growth.”

Productivity Surge Supports Expansion

Third-quarter productivity climbed 4.9% according to the Bureau of Labor Statistics report, substantially exceeding expectations. This productivity gain drove unit labor costs down 1.9% for the period—far more than projected and evidence that the labor market isn’t generating inflationary pressure.

“The latest figures suggest firms are successfully accomplishing more with less labor, lending credence to a jobless expansion scenario,” said Matthew Martin, senior economist at Oxford Economics. “Productivity will be key to determining the economy’s speed limit and inflationary dynamics. If productivity growth continues accelerating due to tax cuts, deregulation, and technological advancements including AI, economic growth can strengthen without triggering unwanted inflation.”

Labor Market Resilience Despite Weak Hiring

While hiring remains sluggish, Thursday’s Labor Department data showed layoffs holding at low levels. Initial unemployment claims for the week ending January 3 totaled 208,000, pushing the four-week moving average to its lowest point since April 27, 2024.

This combination of weak hiring and minimal layoffs characterizes the current labor market dynamic—employers maintaining existing workforces while hesitating to expand headcount, likely banking on continued productivity improvements to meet demand.