diff --git a/packages/next/build/webpack/plugins/next-trace-entrypoints-plugin.ts b/packages/next/build/webpack/plugins/next-trace-entrypoints-plugin.ts
index 4239d87097f8..2f0e7ababae6 100644
--- a/packages/next/build/webpack/plugins/next-trace-entrypoints-plugin.ts
+++ b/packages/next/build/webpack/plugins/next-trace-entrypoints-plugin.ts
@@ -360,6 +360,9 @@ export class TraceEntryPointsPlugin implements webpack5.WebpackPluginInstance {
                   fileList,
                   reasons,
                   (file) => {
+                    // if a file was imported and a loader handled it
+                    // we don't include it in the trace e.g.
+                    // static image imports, CSS imports
                     file = nodePath.join(this.tracingRoot, file)
                     const depMod = depModMap.get(file)
                     const isAsset = reasons.get(file)?.type.includes('asset')
diff --git a/test/integration/production/pages/api/readfile-dirname.js b/test/integration/production/pages/api/readfile-dirname.js
new file mode 100644
index 000000000000..a85b9716e518
--- /dev/null
+++ b/test/integration/production/pages/api/readfile-dirname.js
@@ -0,0 +1,13 @@
+import { readFileSync } from 'fs'
+import { join } from 'path'
+
+// __dirname is going to be different after build since the file
+// is located in .next/server/pages/api instead of the src location
+// so this is not currently expected to work
+const file = join(__dirname, '../../static/data/item.txt')
+const content = readFileSync(file, 'utf8')
+console.log({ file, content })
+
+export default (req, res) => {
+  res.end(content)
+}
diff --git a/test/integration/production/pages/api/readfile-processcwd.js b/test/integration/production/pages/api/readfile-processcwd.js
new file mode 100644
index 000000000000..9b8f89b96654
--- /dev/null
+++ b/test/integration/production/pages/api/readfile-processcwd.js
@@ -0,0 +1,9 @@
+import { readFileSync } from 'fs'
+import { join } from 'path'
+const file = join(process.cwd(), 'static/data/item.txt')
+const content = readFileSync(file, 'utf8')
+console.log({ file, content })
+
+export default (req, res) => {
+  res.end(content)
+}
diff --git a/test/integration/production/test/index.test.js b/test/integration/production/test/index.test.js
index 6a4db30c04e7..5276dbf5db56 100644
--- a/test/integration/production/test/index.test.js
+++ b/test/integration/production/test/index.test.js
@@ -234,6 +234,28 @@ describe('Production Usage', () => {
           /!/,
         ],
       },
+      {
+        page: '/api/readfile-dirname',
+        tests: [/webpack-api-runtime\.js/, /static\/data\/item\.txt/],
+        notTests: [
+          /next\/dist\/server\/next\.js/,
+          /next\/dist\/bin/,
+          /\0/,
+          /\?/,
+          /!/,
+        ],
+      },
+      {
+        page: '/api/readfile-processcwd',
+        tests: [/webpack-api-runtime\.js/, /static\/data\/item\.txt/],
+        notTests: [
+          /next\/dist\/server\/next\.js/,
+          /next\/dist\/bin/,
+          /\0/,
+          /\?/,
+          /!/,
+        ],
+      },
     ]
 
     for (const check of checks) {
@@ -600,6 +622,22 @@ describe('Production Usage', () => {
       expect(body).toEqual('API hello works')
     })
 
+    // Today, `__dirname` usage fails because Next.js moves the source file
+    // to .next/server/pages/api but it doesn't move the asset file.
+    // In the future, it would be nice to make `__dirname` work too.
+    it('does not work with pages/api/readfile-dirname.js', async () => {
+      const url = `http://localhost:${appPort}`
+      const res = await fetchViaHTTP(url, `/api/readfile-dirname`)
+      expect(res.status).toBe(500)
+    })
+
+    it('should work with pages/api/readfile-processcwd.js', async () => {
+      const url = `http://localhost:${appPort}`
+      const res = await fetchViaHTTP(url, `/api/readfile-processcwd`)
+      const body = await res.text()
+      expect(body).toBe('item')
+    })
+
     it('should work with dynamic params and search string', async () => {
       const url = `http://localhost:${appPort}`
       const res = await fetchViaHTTP(url, `/api/post-1?val=1`)