Trade Deficit Widens to Record Level


For goods only, the United States deficit with the world surged to a record $US891.3 billion in 2018 from $US807.5 billion the prior year.

The report also showed the largest-ever gap with China, sitting at $419 billion.

As historical data shows, trade deficits usually jump following tax cuts, like the 2001 and 2003 tax cuts under President George W. Bush, and President Ronald Reagan's cuts in the early 1980s. But the tariff hikes have since been postponed as the administration has cited progress in trade talks with China.

After eliminating the influence of prices, which renders the numbers used to calculate gross domestic product, the goods-trade deficit widened to $US1.01 trillion in 2018 from $US935.3 billion in 2017.

The Fed said slowing global growth and the government shutdown weighed on the USA economy at the start of the year but that it continued to grow.

One World Trade Center and lower Manhattan are seen from the Empire State Building in New York City, US, February 14, 2019. Derek Scissors, resident scholar at American Enterprise Institute calculates the tax cuts could boost the trade deficit by $200 billion.

Lawrence Summers, a Harvard economist and former chairman of President Barack Obama's National Economic Council, told The Times that "the trade deficit is a bad metric for judging economic policy". With the US 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. This is because increased income is likely to bring more consumption, which fuels the need for foreign goods, a fundamental of the trade deficit. In retaliation, China put $100 billion in tariffs on US goods.

Donald Trump imposed tariffs past year on foreign steel, aluminum and Chinese products in the belief that these import taxes would ultimately reduce the trade imbalance.

The US trade deficit in 2018 widened to its highest level since 2008, at $621bn. Moreover, Trump pulled the US out of the longstanding trilateral North American Free Trade Agreement, which came into force in 1994 to unify the US, Canada, and Mexico.

Still, tariffs so far have proven to be a blunt weapon.

The US economy has been running hot at a time when, partly due to the trade conflicts, other major economies have been cooling.

And as economists predicted, several recent studies found that the total amount of money raised from increased tariffs came from US businesses and citizens.

Economists said activity from cash-fluid businesses and consumers helped increase the buying of imports while the overvalued dollar weighed on exports. Data from December 2018 was released Wednesday.

A second study by four economists from the University of California, Los Angeles; Yale University, the University of California, Berkeley; and Columbia University reached the same conclusion. I have great respect for President Xi, but we can't have that.

Trump's tariffs also may cause USA companies to write off sizable investments in their Chinese factories as they scramble to shift operations to safer venues, said the study by Weinstein, Amiti and Redding.

The study also found sizable costs relative to any expected benefits.