America’s $901 billion trade deficit is like ‘chronically high cholesterol,’ top economist says, and Trump’s 150-day tariffs are the wrong medicine

Fortune

by Tristan Bove

February 25, 2026

AI-Generated Deep Dive Summary

The U.S. trade deficit, standing at $901 billion last year, has been a focal point for President Donald Trump, who has labeled it a "national emergency" and implemented sweeping tariffs. However, Gita Gopinath, Harvard professor and former IMF chief economist, argues that while the deficit is significant, it does not currently pose a crisis. Instead, she likens the situation to having chronically high cholesterol rather than experiencing a heart attack. The U.S. has run trade deficits for decades but has avoided a balance-of-payments crisis because foreign investors continue to purchase American assets like government debt and equities. Trump's approach to addressing the deficit through tariffs is flawed, according to Gopinath. She explains that the real danger arises only if international confidence in the U.S. wavers, potentially leading to a loss of foreign exchange reserves and an inability to service international debt—a true balance-of-payments crisis. This last occurred in the early 1970s when the U.S. abandoned the gold standard, causing significant economic turmoil. Gopinath warns that conflating the current trade deficit with such a severe crisis is misleading. Despite legal challenges and criticism from experts like Gopinath, Trump persists in framing the issue as an emergency. His administration has even reframed the trade deficit as a balance-of-payments problem to justify new tariffs under Section 122 of the 1974 Trade Act. This strategy risks confusing a long-term structural issue with a much more severe economic collapse, akin to treating high cholesterol as a heart attack. For businesses and investors, this matters because misdiagnosing the trade deficit could lead to policies that exacerbate rather than resolve underlying issues. Tariffs may harm global supply chains, increase costs for consumers, and trigger retaliatory measures from other countries. Gopinath’s perspective highlights the importance of addressing the root causes of the deficit—like reducing fiscal deficits and fostering economic reforms—rather than implementing short-term, potentially harmful measures like tariffs. In a time of economic uncertainty, it is crucial to understand that while the U.S. trade deficit is significant, it does not yet signal an imminent crisis. Instead, it calls for careful, evidence-based policies rather than overreacting with measures that could do more harm than good.

Verticals

businessfinance

Originally published on Fortune on 2/25/2026