United States trade deficits hit record high following Trump tariff wars

Jeannie Matthews
March 7, 2019

Adjusted for inflation, December was the highest imbalance on trade goods in United States history.

The two nations have imposed tit-for-tat tariffs on billions of dollars worth of each others' goods, roiling financial markets, disrupting manufacturing supply chains and shrinking USA farm exports.

The tariffs are part of the tit-for-tat trade war previous year when China retaliated over USA tariffs by targeting agriculture.

In a study published on Saturday, economists from the Federal Reserve Bank of New York, Princeton University and Columbia University found that tariffs imposed past year by Trump on products ranging from washing machines and steel to some $250 billion in Chinese imports were costing USA companies and consumers $3 billion a month in additional tax costs and companies a further $1.4 billion in deadweight losses.

Revision estimates for fourth-quarter GDP will be coming down following an unexpectedly deep $59.8 billion trade deficit in December. A strong American dollar also boosted the number.

"Perhaps Donald Trump will now discover that tweets and bluster alone won't dramatically shrink the trade deficit". But while that might be of concern for Trump, many economists disagree with his emphasis on reducing the deficit.

This week also sees the release of Chinese trade data and key USA jobs figures, which will provide a fresh look at the state of the U.S. economy and the Federal Reserve's monetary policy plans.

The Fed said slowing global growth and the government shutdown weighed on the United States economy at the start of the year but that it continued to grow.

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While Trump often blames poor trade agreements for the trade deficit, that may not be the whole story.

After eliminating the influence of prices, which renders the numbers used to calculate gross domestic product, the goods-trade deficit widened to $US1.01 trillion in 2018 from $US935.3 billion in 2017.

A BofA Merrill Lynch Global Research report in 2018 also expects the share of the trade deficit in GDP to grow 0.2 percentage points by 2020. But as trade attorney Scott Lincicome notes, Trump is unable to claim credit for that good news because he's spent so much effort promising the opposite. Economists see the fundamental issue, in the long run, is what happens internally: getting spending in line with saving as a nation.

Trump campaigned on raising some tariffs on imports to 35 percent.

Still, the biggest takeaway from the new trade data is not that the tariffs predictably failed to do what Trump thought they would; it's that the USA economy is powered by the individual decisions of millions of people and businesses, and that entity is far too complex and powerful to be controlled by the White House.

USA officials said past year the administration was considering sanctions against companies and officials linked to China's crackdown, including Xinjiang Party Secretary Chen Quanguo, a member of the Chinese leadership's powerful politburo.

As previously scheduled, the US President had also delayed tariffs on Chinese goods. In a March 2 speech to a conservative political group, he called them "the greatest negotiating tool in the history of our country" and credited them with bringing trade partners such as China to the bargaining table.

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