President Donald Trump threatened Friday to halt trade with countries running trade deficits with the United States unless the Federal Reserve lowers interest rates, introducing the possibility of embargoes as a new tool in his trade policy arsenal. Trump posted on Truth Social directing the central bank to lower rates or face potential embargoes, calling such action potentially better than tariffs and urging the Fed Board to get smart. Speaking later to reporters in the Oval Office, he said he was under no obligation to allow trade and repeatedly floated the idea of banning all trade with Canada.
The threats came after new data showed the U.S. trade deficit in goods and services widened to $88.6 billion in July, the highest level since March 2025 and a 24.4 percent surge from June's $71.2 billion. The country-by-country breakdown showed continued deficits with major trading partners including Mexico at $27.5 billion, Vietnam at $23.3 billion, China at $15.2 billion, and the European Union at $8.9 billion. Zeroing out trade deficits has been a central promise of Trump's economic policy.
Trump also responded to a strong August jobs report Friday, which raised expectations of potential Federal Reserve rate increases rather than the cuts he has long advocated. The president suggested he could implement an embargo with one swipe of the pen, citing the International Emergency Economic Powers Act of 1977, which grants the president power to impose embargoes in what is deemed an economic emergency. The Supreme Court ruled in February that the law does not give the president power to levy tariffs.
The July trade deficit increase was fueled partly by artificial intelligence infrastructure spending, with imports of computers surging 25 percent and semiconductor imports jumping 10 percent as tech companies continued building data centers. Construction jobs, many tied to data center projects, increased by 22,000 in August.