USA trade deficit hits ten-year high

842720_web1_AFP_1EA6OI

The Commerce Department said on Wednesday that a 12.4 per cent jump in the goods deficit in December had contributed to the record $891.3 billion goods trade shortfall past year.

The deficit jumped almost 19% in December, pushing the trade imbalance for all of 2018 to widen to a decade-long high of $621bn. That increase occurred despite the Trump administration's decision to impose several rounds of new tariffs past year on imported steel, aluminum, and thousands of Chinese-made goods, all with the intention of reducing how much America imports.

A trade deficit occurs when a nation's imports exceed its exports.

While Trump sees the trade deficit as a sort of economic score card for which country is on top, most economists disagree with this perspective, viewing trade deficits as a sign of neither economic strength nor weakness, but a function of macroeconomic factors like investment flows, fluctuations in the value of currency and relative growth rates.

The deficit between the USA and the European Union also increased in 2018, up by $17.9bn to $169.3bn.

The $500 billion number could be a reference to the total number of all imports from China a year ago, which added up to $505 billion. While goods exports from the United States increased by $117.8 billion, according to the Census Bureau data, its imports rose by $202.2 billion. Imports jumped 7.5 per cent to $US3.12 trillion on purchases of items from pharmaceuticals to computers, along with services such as travel.

For the full year, exports rose 6.3 per cent to $US2.5 trillion as shipments of goods including crude oil, petroleum products and aircraft engines increased. The goods deficit was a record. Net exports had only been a small drag in last week's initial estimate for fourth-quarter GDP but today's report is pointing to a more significant one.

The US merchandise trade deficit increased by $83.8 billion, or 10.4 percent, to $891.3 billion in the past year, the Commerce Department said.

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This comes despite President Trump's "America First" policies aimed at shrinking the trade gap and increasing American exports. He initially imposed a 25 percent tariff on around $50 billion of Chinese goods.

Although the strengthening dollar and slowing economic growth in some regions contribute to the widening deficits, the record number may also partly be the president's own making- thanks to the trade tension he started with major trading partners including China and the Tax Cuts and Jobs Act passed in 2017.

Moreover, his attacks and threats to impose tariffs on trading partners from China to the European Union has also contributed to the slowdown in those economies and therefore their demand for American goods.

Apart from that, the Trump administration launched a full-scale trade war against China.

Data from the Commerce Department showed the deficit in 2018 soared to 621 billion dollars.

"Billions of dollars, right now, are pouring into our Treasury", he told the Conservative Political Action Conference, adding that Chinese exporters are absorbing nearly the entire burden of the tariffs.

Wednesday's figures were delayed a month by the partial government shutdown.

Following yesterday's economic growth figures, which surprised to the downside, the ABS will release global trade and retail numbers for January. With the USA economy doing well while other economies are faltering, and the Federal Reserve raising rates, the dollar has strengthened, making foreign products look cheaper and making our exports more expensive (i.e., less competitive) in other countries.

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