Posted originally on CTH on January 8, 2026 | Sundance 

As you review this latest data on trade, remember any drop in trade deficits has two big picture functions:

First, lower trade deficits generally mean the accompanying GDP release will be stronger than anticipated because imported products are a deduction from the valuation of all goods and services created in the U.S. economy.  Lower imports mean less is deducted.

Secondly, and perhaps most importantly, a drop in the trade deficit created by diminished imports means more wealth remains inside the USA.

We are not spending, sending money overseas, to import foreign goods at the same rate, and that money stays inside the U.S. economy. More wealth inside the U.S. provides the fuel for expanded domestic growth, more investment gains in USA manufacturing and USA industry and the ability to pay higher USA wages.

The Commerce Department is reporting today that the U.S. trade deficit for October 2025 dropped to the smallest amount in 16-years.  A significant amount of the deficit drop was because a high value of physical precious metals (gold/silver) was exported, simultaneous with big offshore pharmaceutical companies dropping the prices of imported products (policy and tariff pressure).

WSJ – The U.S. trade deficit shrank dramatically in October to its lowest level since 2009, the Commerce Department said Thursday, an unexpected twist in a year of volatile trade flows that have been buffeted by the Trump administration’s steep tariffs.

American imports fell to $331.4 billion in October, while exports increased to $302 billion. That yielded an October deficit of $29.4 billion, an imbalance nearly 40% smaller than September’s. (more)

Some may question whether internal consumer demand has declined, causing the significant drop in imports.  However, the U.S productivity rate is still very high – which generally means domestic consumer demand is still high and all units produced have a lower overall cost per unit.

Economic analysis can get weedy…. so, a simple way to look at productivity is to think about baking bread in your kitchen.

If you were going to bake 4 loaves of bread it might take you 2 hrs. start to finish. However, if you were going to bake 8 loaves of bread it would not take you twice as long because most of the tasks can be accomplished with simple increases in batch size, and only minor increases in labor time. Your productivity measured in the last four loaves is higher.

Economic Productivity is measured much the same way, within what’s called a production probability equation.

Additionally, if two hours of your time are worth $40, each of four loaves of bread costs $10 in labor; but if you make 8 loaves in the same amount of time the labor cost is only $5/per loaf.

Improved gains in efficiency/productivity (more bread needed) supports faster economic growth without generating higher inflation; no need to raise prices because your cost to make each loaf of bread decreases the more you make.

Higher sales and lower per unit cost means more profit for the bread-maker. No need to raise prices, and without inflation, there’s no motive for the Fed to raise or maintain high interest-rates.

Increases in productivity generally means the economy is generating more stuff. The more stuff generated the higher the value of all economic activity; this increases GDP growth.

When we see higher productivity in direct alignment with GDP increases, the increased production indicates sustainable GDP growth.

Additionally, we can look at the internal dynamics to see big happenings inside the domestic economy.

The data was delayed by the government shutdown, but in December the Bureau of Economic Analysis released the third quarter 2025 GDP {DATA HERE} showing a very strong 4.3% growth.  The second quarter was also revised up to 3.8%.

Real GDP increased at an annual rate of 4.3 percent in the third quarter of 2025, showing increases in consumer spending, increases in exports.  Third quarter imports, which are a subtraction in the calculation of GDP, decreased boosting the overall GDP number.  This strong GDP result corresponds to today’s report showing a shrinking trade deficit.