In a blow to Trump, America’s trade deficit hit record US$891b

Erika Holt
March 8, 2019

The US trade gap with the rest of the world jumped to a 10-year high of $621bn ($NZ916bn) last year, dealing a blow to President Donald Trump's deficit reduction plan.

The department's final 2018 trade report, which was delayed by the government shutdown, showed that the USA bought far more in foreign goods than it sold to customers in Europe, Asia, North America and Africa. Adjusted for inflation, December was the highest imbalance on trade goods in USA history.

"We have nearly an $800 billion a year trade deficit with other nations", Trump said in November 2017. According to the Washington Post, it is the largest merchandise trade deficit in the 243-year history of the United States.

President Donald Trump is pursuing a protectionist trade agenda to shield USA manufacturing from what he says is unfair foreign competition.

But America's dependence on imports seems to have increased after the tariffs that Mr. Trump imposed past year on foreign steel, aluminum and Chinese products.

Small or shrinking trade deficits are also not necessarily a measure of a healthy economy; in fact, as Bloomberg News' Shawn Donnan points out, the year the US trade deficit shrank the most was 2009, which was not exactly a blockbuster year for the economy.

Screenshot JP Morgan
US trade deficit hits 10-year high as Trump trade wars backfire

However, the central bank said the manufacturing sector cited concerns about the trade tensions, including "weakening global demand, higher costs due to tariffs, and ongoing trade policy uncertainty". And while the widening trade gap can be seen as an embarrassing data point for the President, it underscores how the asymmetry in the U.S. US stock futures were marginally lower. This is partly because of the fiscal stimulus Trump has been pumping into the economy, through both his tax cuts and federal spending hikes.

For its part, Beijing is publicly expressing its intent to crack down on policies that have long enabled Chinese companies and local government officials to force American and other foreign businesses to share their technology as the price of admission to the vast Chinese market.

The best chance of the trade deficit shrinking any time soon would require an economic downturn that no one wants. A few months back, he imposed a 10 percent tariff on an additional $200 billion and said that number would rise to 25 percent on January 1st if China did not agree to US trade demands. Consumer goods imports jumped 2.4 billion US dollars, boosted by a 0.7 billion USA dollars increase in imports of household and kitchen appliances. A new trade accord that would provide Trump with a much-needed win after the collapse of his summit with North Korean leader Kim Jong Un. Nominal goods exports to China tanked by 33% year-over-year in December, likely as a result of China's retaliatory tariffs on US goods.

And as economists predicted, several recent studies found that the total amount of money raised from increased tariffs came from USA businesses and citizens. "We are going to start whittling that down, and as fast as possible", Trump said after his trip to Asia in November 2017.

"We compute that tradeable real wages fall the most in heavily GOP counties because of the [trade] war", the study found.

The duties cost consumers $1.4 billion a month and businesses $3 billion a month by the end of previous year, according to research released last week by Mary Amiti, an economist at the Federal Reserve Bank of NY, and economists from Princeton and Columbia universities.

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