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Catherine Rampell: What's behind the ballooning trade deficit

09 Mars 2019

Stephen Stanley, chief economist at Amherst Pierpont Securities, suggested that the trade gap climbed so quickly because importers were rushing to bring their goods into the United States before a planned expansion of tariffs Chinese products on January 1. We are right now taking in $billions in Tariffs. And by themselves, they don't typically produce any meaningful change in the trade deficit. It is, by and large, an accounting measure that often moves in directions inverse to the health of the United States economy.

The U.S. economy is now producing around US$21 trillion of GDP a year so the deficit in goods trade is a little over four per cent a year. "It's not an accident".

"We expect the slowdown in global growth to continue to weigh on exports and industrial production", Mickey Levy of Berenberg Capital Markets wrote in a note to clients. Adjusted for inflation, December was the highest imbalance on trade goods in USA history. The trade gap reached the largest total since 2008, when it was $708.7-billion. "The administration's fiscal policies have helped to boost the trade deficit", the Alliance for American Manufacturing president Scott Paul told Reuters.

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

The trade deficit (or surplus when positive) is the difference in the value of goods that a nation exports minus what it imports.

In 2016, it was $502 billion.

US officials also announced this week they planned to investigate Japanese titanium exports for possible tariff implementation. He set out to fix a non-problem (a trade deficit) and created real ones including worldwide conflict, higher consumer prices and gross inefficiency in our economy when certain businesses have lobbying clout to get tariff exemptions and others do not.

US and Chinese officials have hinted that some kind of agreement could be finalized by the end of March, with Trump and President Xi Jinping possibly meeting to formalize the deal at Trump's private club in Mar-a-Lago, Florida. The president clearly obsesses about the trade deficit, but would he really prefer that the US economy not be humming along with both low inflation and also record low unemployment rates both overall and for just about every demographic group, even those demographic groups that solidly vote Democrat?

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What's more, the tariffs Trump imposed on steel, aluminum and hundreds of billions' worth of Chinese goods likely contributed to the trend: During 2018, American companies that import goods from China appeared to accelerate their spending on them to avoid Trump's future import taxes.

The goods trade deficit with China rose to a record $419.2 billion, despite Trump's decision past year to impose tariffs on $50 billion in imports from the country.

Another factor was the decision by the US Federal Reserve to increase interest rates four times in 2018.

"The assumption now is that trade wars will intensify, and that growth will suffer as a result".

But advocates of a stronger USA currency policy argue that Trump himself carries plenty of blame.

Media outlets and political pundits are having a field day criticizing Trump's protectionist trade policies for backfiring and hurting the US economy, but not those of the countries it was directed against.

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. The goods shortfall topped the 2006 record of US$838.3 billion, set as the housing bubble was peaking, and marked the third consecutive year of rising deficits. To his mind that means the U.S.'s trade balance is worse than even the official data reflects.

Catherine Rampell: What's behind the ballooning trade deficit