US trade deficit narrows after tariffs, but gap with India and major economies widens: SBI report

The United States’ overall trade deficit has narrowed by $42 billion since the introduction of tariffs, but the shortfall with its five leading trade partners, including India has grown by $9 billion, according to a report by the State Bank of India (SBI). The SBI report, released this week, noted that total trade between the US and its top partners rose to $257 billion in April-July 2025, up from $248 billion in January-March 2025. This indicates a rebound in trade volumes even as tariffs reshaped import and export patterns.

Tariffs reduce total deficit, but shift trade flows

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According to SBI’s analysis, the US trade deficit, which exceeded $150 billion per month before the tariffs took effect in early 2025, fell to below $100 billion a month after April. The report attributed this decline to reduced import inflows following the tariff measures.

However, the relief seems uneven. While the overall US trade gap has narrowed, the country-level picture tells a different story. The report noted that the US reduced its deficit with China and Switzerland, but saw sharp increases with Vietnam, Mexico, Taiwan, and India.

During the post-tariff period, the US trade deficit with India climbed from $17 billion in the first quarter of 2025 to $23 billion between April and July – a rise of $6 billion. The SBI report said this increase mirrors a broader shift towards Asian and emerging economies taking up larger shares of the US market.

The deficit with Vietnam rose from $36 billion to $61 billion, with Mexico from $47 billion to $65 billion, and with Taiwan from $22 billion to $48 billion. Meanwhile, the deficit with China fell from $71 billion to $58 billion, and with Switzerland from $54 billion to just $1 billion.

In July 2025, Mexico overtook all others as the largest trading partner of the US, accounting for about 16 per cent of its total trade. Canada followed at around 12.5 per cent, and China accounted for roughly 7.6 per cent. India ranked 10th, making up 2.7 per cent of total US trade.

The SBI report concluded that while tariffs have succeeded in lowering the overall trade deficit, they have effectively redistributed it across a new set of trading partners. “The deficit is shifting from traditional economies like China and Switzerland to emerging partners such as Vietnam, Mexico, Taiwan, and India,” the report stated.