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Economic Commentary

Economic Commentary: Deficit Attention Disorder

October 12, 2026 by Jeanette Garretty, Chief Economist
Worth Watching
  • International Monetary Fund (IMF) World Economic Outlook, released Tuesday, October 13 
  • China Economic Data on inflation and Balance of Trade, released Tuesday, October 13 
  • US Consumer Price Index (CPI) for September, released, Wednesday, October 14 
  • US Retail Sales for September, released Thursday, October 15 

Deficit Attention Disorder  

US exports increased in August, but not nearly enough to counter surging imports. Energy played a role on both sides of the equation. As has been much discussed, diesel and LNG are exported in significant volumes.  Less commonly highlighted are the imports of crude oil required by Gulf Coast refineries  which are not configured to use the type of crude produced domestically; continued conflict in the Straits of Hormuz have kept the price of that imported crude high. Capital goods imports, especially tech imports such as semiconductors, were also strong and at higher price points.

The trade deficit is a highly problematic target for economic policy. Strong US consumer and business spending is most often reflected in sharp increases in imports, precisely as witnessed in the third quarter. Actions taken to reduce a trade deficit via import restrictions can create problems for exports by constraining the economic growth and demand for US goods and services by trading partners. Seasonal factors also often come into play as refined products are stocked for winter consumption and retailers build inventories to support critical holiday sales. At the moment, inflation, rising interest rates and a surprisingly strong US dollar make it difficult to  substantially boost US exports. Reducing the trade deficit by explicitly curtailing the US economic growth leading to higher imports  is an appropriately unpopular idea. Not surprisingly, the policy emphasis placed on the trade deficit earlier in the year has faded in the face of many other more important economic issues. 

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