USA trade deficits hit record high following Trump tariff wars

07 March, 2019, 14:09 | Author: Mary Valdez
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While Trump appears to be on the verge of a deal with China that will see it make some trade concessions and agree to buy significantly more United States agricultural product and energy, which might be regarded as a win, increased Chinese purchases of USA products will essentially cause a redirection of trade - and the trade deficits - unless the U.S. is able to greatly expand capacity and improve its export competitiveness.

Globally, the trade deficit jumped from $796 billion to $870 billion between 2017 and 2018, an increase of $74 billion.

China retaliated, and the simmering trade war roiled financial markets past year.

Weinstein said the President appears to be relying on a 2018 analysis of data from the 1990s, when the U.S. represented a larger share of the global economy and enjoyed more leverage over exporters in other countries.

"T$3 rade now looks set to be a more serious drag in the first quarter", Capital Economics wrote in a note.

Despite the "victory" in the coercive negotiations with Canada and Mexico that led to the re-writing of what used to be the North American Free Trade agreement, there was a $US19.8 billion deficit with Canada and a $US81.5 billion deficit with Mexico - the biggest deficits in a decade. The answer largely (though not exclusively) has to do with Trump's own economic policies.

The U.S. trade deficit ballooned in 2018 despite moves by the Trump administration over the past year to keep it down and renegotiate trade agreements. They reflect broader trends in the economy, including savings and investment rates. The previous trade deficit recrod, of $838.3 billion, was in 2006, under President George W. Bush, as the housing bubble peaked. We were at the tail end of the Great Recession then, and, because the economy was bad, Americans bought less stuff from overseas.

With the trade gap growing, analysts are concerned it could slow down US growth this year.

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Trump and his supporters have cast the blame in part on the US Federal Reserve, arguing that its decisions to hike rates a year ago contributed to the strengthening of the dollar. Americans are importing far more from overseas than they are exporting-imports grew 7.5% while exports increased only 6.3%.

Both have weakened foreign demand for American goods and services.

Put another way, by Trump's own benchmark, the U.S. is 20% worse off than it was at the end of 2016, just before he took office.

He has picked trade wars the world over, with friends and foes alike. Auto tariffs would provoke retaliatory actions by the European Union, with unpleasant consequences for both sides and the global economy.

Trump hit roughly half of Chinese imports with taxes a year ago, a move created to kickstart trade negotiations with the goal of increasing exports to that country and stopping the forced turnover of US technology and theft of intellectual property.

The government reported last week that trade subtracted 0.22 percentage point from GDP growth in the fourth quarter. "Imports increased $217.7 billion, or 7.5 percent", the report reads. 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.

On an annual basis, the trade gap widened 12.5%. There's reason to be skeptical, however, and not only because some of these objectives seem like fantasies.



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