United States goods deficit hits record high in 2018

United States goods deficit hits record high in 2018

"The trade deficit exploded a year ago despite the Trump administration efforts to make America great again, and the trend is unlikely to get any better in 2019", said Chris Rupkeychief economist at MUFG in NY. Of course, foreign exporters can only flood the USA with imports if US consumers are willing to buy them.

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

The U.S. trade deficit with the rest of the world surged 12.5 percent a year ago to $621 billion, with the goods portion of the shortfall reaching a record high, the Commerce Department reported Wednesday.

The White House maintains that trade imbalances translate directly into thousands of job losses but while the tariffs protections help some companies, many others have struggled with higher prices and held off on investments amid the trade war. The official insisted on anonymity to discuss private conversations.

"Perhaps Donald Trump will now discover that tweets and bluster alone won't dramatically shrink the trade deficit", Reuters quoted Scott Paul, president of the Alliance for American Manufacturing in Washington, as saying. Other Gallup polling earlier in February found that Americans' perceptions of North Korea as the greatest enemy of the USA had plummeted in the past year.

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Trump also slapped tariffs, which are a kind of tax on imported goods, on steel and aluminum imports, a move that led to retaliation from some USA trading partners.

This is the third consecutive year of increasing trade deficits, topping the previous record in 2006. In September, it imposed a 10 percent tax on an additional $200 billion of Chinese goods.

Some of this is likely due to the ongoing trade war between the US and China. As consumers increased their spending, purchases of imported goods rose while the overvalued dollar weighed on exports. Many businesses are now paying higher costs to import electrical components and other goods from China that aren't made in the United States. This shortfall also exceeded economists' estimates for a $57.9 billion shortfall.

The trade deficit increased by almost 19 per cent in December, leading to a $US621 billion gap for 2018 - the largest since 2008.

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The US has to print dollars to fund its deficits and, with the US dollar the global currency for foreign exchange transactions and the dominant currency for global central bank reserves, the rest of the world needs to exchange goods and services for US dollars. But there are also secondary effects.

Nor have the tariffs provided the negotiating leverage that Trump sought.

However, 2018's deficit is higher than the $552.3bn recorded in 2017.

Economists have long warned that Trump's tax cuts would ultimately exacerbate a trade deficit he has vowed to reduce, as Americans, flush with extra cash, bought more imported goods.

China's ceremonial legislature was poised this week to back a law that would discourage officials in the country from pressuring USA companies to hand over technology. The greater reliance on Chinese imports likely reflects an acceleration in economic growth a year ago from Trump's debt-funded tax cuts, which were created to increase spending by consumers and businesses.

But it's unclear whether China would actually enforce this commitment - a concern that could potentially prevent a meaningful trade agreement.

"That will take time and if the Chinese growth is as soft as most economists believe, it is hard to see how they can ramp up demand for USA products very much this year", said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Exports also rose, but not enough to chip away at the imbalance. Yet Beijing would likely regard such a mechanism as infringing on its sovereignty.

Anything could happen, as Trump himself said on Wednesday: It's "either going to be a good deal or it's not going to be a deal".

"But now, when you're getting close to victory, to relent at the eleventh hour, without achieving meaningful, enforceable and verifiable structural reform to China's trade policies, would be an abject failure of the president's China policies and people will shrug their shoulders and say what the heck did he begin this for if he won't complete it". And instead of pulling back on support for technology development, Premier Li Keqiang, in his report to the national legislature on 2019 government goals, promised even more such support.

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