United States trade deficit hits 10-year high as Trump trade wars backfire

Trump dealt blow as US trade deficit jumps

The US trade deficit's biggest contraction on record came in 2009 when it shrank by more than $300 billion in a single year as a result of the recession then under way-and the resulting collapse in US demand for imported goods.

While Mr Trump frequently cites the deficit as evidence of the failure of his predecessors' trade policies - even though most economists don't dwell on the indicator - the gap has increased by $119bn during his two years as president. He set out to fix a non-problem (a trade deficit) and created real ones including global conflict, higher consumer prices and gross inefficiency in our economy when certain businesses have lobbying clout to get tariff exemptions and others do not.

The United States previous year imposed tariffs on $250 billion worth of goods imported from China, with Beijing hitting back with duties on $110 billion worth of American products, including soybeans and other commodities.

Separate data from China's customs administration provide part of the explanation.

December's trade imbalance worsened because US imports rose 2.1 per cent as Americans bought more household appliances, cellphones and computer products from overseas.

Tax cuts in the United States boosted domestic demand, while the relatively strong dollar and import tariffs weighed on exports. Trump has previously acknowledged Japan's trade surplus with the US, though prior to this week he had done little to concretely address the issue.

"At the end of the day, the data don't lie", he added.

And that's a bad thing how, exactly?

The U.S. and China have been going through months of tough negotiations, during which Trump vowed to reduce the trade deficit between the world's two largest economies. At the same time, the strong dollar dissuaded foreign buyers from purchasing USA -made goods, "making a mockery of the White House's push to reduce the trade deficit".

And the trade gaps with China, Mexico and the European Union also reached at all-time highs even though Washington slapped tariffs on hundreds of billions in imports from its largest trading partners. It may also be in anticipation of striking a new commercial agreement with the USA that will require China to raise its American purchases.

If talks advance, Trump has said he and Chinese President Xi Jinping could meet later this month, most likely at his Mar-a-Lago estate in Florida, to finalize an agreement. Adjusted for inflation, December was the highest imbalance on trade goods in United States history. 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? The trade deficit for goods and merchandise set a new record of $891 billion. US stock futures were marginally lower. Other Gallup polling earlier in February found that Americans' perceptions of North Korea as the greatest enemy of the US had plummeted in the past year.

In recent days, Secretary of State Mike Pompeo, among others in the administration, have been visiting farmers and constituents to shore up support in rural areas and political battlegrounds in the Midwest that are particularly sensitive to trade. Which it did, forcing China to cease its threats of retaliation in favor of negotiating with the U.S.

Both figures are relatively modest, given that the USA economy produces $20 trillion of goods and services a year. -China trade relationship can work in Trump's favor: there are simply far more Chinese goods coming into the U.S.to hit with tariffs than there are American goods flowing into China that can be hit with retaliatory charges.

Economists speculate that the trade deficit is growing because of broad economic forces, including a chronic shortfall in national savings that was exacerbated by last year's $1.5 trillion corporate and personal income tax cut.

It's not clear, for example, that the United States has the capacity to produce that much more energy or farm goods to meet new booming demand. On the other hand, imports again rose as American consumers continued to patronize foreign-made goods, especially cheaper products from China.

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