U.S. trade deficit hits 10-year high despite tariff war

The irony is that those policies likely contributed to the deficit.

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.

Despite President Trump's tough stance and tariffs on trade with China, the American trade deficit with China also hit a record $419 billion.

The commerce department said the gap between what the United States sells and what it buys from other countries rose to $59.8bn in December from $50.3bn in November.

The rapid growth of US trade deficits reflect the failure of Trump administration trade policies, as well as the negative impacts of tax cuts and spending increases, which have sharply increased the federal budget deficit, and tightening of USA monetary policy, resulting in upward pressure on interest rates and the real value of the dollar.

But at the end of the day the USA does need to keep growing exports. Rather, they are more likely to result in a doubling down, with increased pressure being brought to bear on USA rivals. And although the United States imposed duties on about $250 billion of Chinese goods - more than double what China slapped on US products - the statistics suggest that the United States was hit harder than the Chinese.

A truck passes a stack of China Shipping containers at the Port of Savannah in Georgia on July 5, 2018.

If the trends of the past year and economists' expectations hold true, trade data to be released Wednesday will show the U.S. trade deficit in goods and services with the world topped $600 billion in 2018. The goods deficit was a record. He has frequently labeled it an outright economic loss.

The destructive and pointless absurdity of the Trump administration's aggressive trade policies showed up, quite predictably (to those outside the Trump administration) in a blow-out in the USA trade deficit in 2018. During his tenure in the White House, Cohn tried and tried and tried again to get the president to understand that many of his economic views - on free trade, on manufacturing, on tariffs - were flat-out incorrect.

"What is certain is that in opening up the financial sector, China and the United States can fully agree on each other", Guo Shuqing, the chairman of China's banking regulator, told reporters Tuesday. And it's not necessarily a cause for concern. Those lower costs have indeed contributed to the loss of USA factories to foreign countries and devastated vast swaths of the industrial Midwest.

There were also notable declines in USA shipments to China of frozen fish and American-made cars, among the other products hit by higher tariffs.

That's good news, because high levels of imports are a sign of a healthy economy.

If, as Donald Trump has said, trade wars are good and easy to win, why is the U.S. losing the wars it initiated and losing so bigly? Imports of goods and services increased 2.1 percent to US$264.9 billion in December. The U.S. just posted the largest merchandise trade deficit in its history: $891 billion.

On an annual basis, the trade gap widened 12.5 per cent. It is also $1.4 billion beneath Econoday's consensus range and $2.2 billion deeper than the consensus.

Kimberly Clausing, an economist at Reed College, points to a sharp increase in government borrowing.

What's more, Trump's $1.5 trillion tax cut enacted in late 2017 served to further fuel the deficit. 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". But his impulse to achieve faster growth through government borrowing contributed to a wider trade gap.

That said, China does appear at least open to prying open more of its financial sector, which has largely been closed off to USA and European banks.

It appears that the expansion of the trade gap is accelerating. Sales overseas increased 6.3% to $2.5-trillion in 2018, also the highest level. That disparity has helped drive up demand for imports over exports.

The figures follow last week's initial report on fourth-quarter gross domestic product, which showed net exports were a drag on growth for the fourth time in five quarters. This can lead to declines in both imports and exports. And it threatened to escalate that tax to 25 percent at the start of 2019 and essentially impose tariffs on all Chinese imports unless progress was made in trade talks.

"In particular, economic weakness in China and Europe and trade-related uncertainties are dampening trade volumes".

But trade battles do have consequences.

Trump campaigned on raising some tariffs on imports to 35 percent. And businesses that depend on Chinese imports say they're grappling with higher prices. 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. They should also promise to go after a serious problem - China's theft of our intellectual property - via the World Trade Organization.

  • David Armstrong