Rising trade deficit no cause for worry

Reducing the gap is a key plank of president Donald Trump's policies. But in 2018 the US exported fewer goods compared with how much it bought
Reducing the gap is a key plank of president Donald Trump's policies. But in 2018 the US exported fewer goods compared with how much it bought
Author

09 March, 2019

The skyrocketing U.S. trade deficit in 2018 hit the highest level in a decade, a resounding failure for President Donald Trump's global trade offensive, government data showed on Wednesday.

The U.S. trade deficit past year has surged to the highest level since 2008, according to a report by U.S. Commerce Department Wednesday. The government also sought to stimulate the economy with a $1.5 trillion tax cut package, which jolted both consumer and business spending, helping to lift imported goods to a record $2.6 trillion in 2018.

Even so, the administration is betting that the president's rampant use of tariffs to push trading partners to the negotiating table will lead to higher US exports and more opportunities for American businesses and workers. Last year, he started with foreign steel and aluminium and a number of imports from China. And by themselves, they don't typically produce any meaningful change in the trade deficit.

Imports of goods and services increased 2.1 percent to $264.9 billion in December, likely as businesses stocked up in anticipation of further duties on Chinese imports. "Imports increased $217.7 billion, or 7.5 percent", the report reads. But the tariff hikes have since been postponed as the administration has cited progress in trade talks with China.

"The chances of a deal with China this month look a bit weaker now, while more trade conflict with Europe seems increasingly likely", said Chris Beauchamp, chief market analyst at online trading firm IG.

Another is that other countries have levied their own retaliatory tariffs on our own products - most famously, red-state goods such as soybeans and bourbon.

This took place at the same time as growth in the rest of the world in 2018 slowed markedly, which led to an increase in the USA trade gap.

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On an annual basis, the trade gap reached the largest total since 2008, when it was $708.7 billion.

In December, imports of goods and services increased 2.1 percent to 264.9 billion USA dollars.

Trump has made the trade deficit a focus of his economic foreign policy and frequently mentions it when discussing global trade.

"We do have concerns about certain aspects of the trade policy pursued by the current USA administration", Malmstrom said in a statement last week before the meeting, according to CNBC. The actual deficit also exceeded economists' expectations for a $57.9 billion shortfall, as exports fell for a third straight month while imports again rose. A surfeit in resources trade was not able to prohibit the total deficit for 2018 from escalating almost 19 percent in December to a decade-long high of $621bn. Trump asked China to abolish tariffs on USA agricultural products earlier this month. Trump declared on Twitter last April as the trade deficit exploded under his watch.

It is that trade statistic that now hangs over several ongoing trade discussions, including an expected trade summit with China toward the end of March, that could largely reshape America's participation in global commerce.

"When we impose a tariff, it is the domestic consumers and purchasers of imports that bear the full cost of the tariffs", said David Weinstein, an economics professor at Columbia University, who co-wrote one of the papers. Trump attacked Obama over the deficit for years, accusing him of "bankrupting our country" and calling the trade deficit "one of our greatest national security threats".


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