Record US deficit in traded goods

Jermaine Castillo
March 9, 2019

Farmers in the Midwest, a key part of Trump's voter base in 2016, are going bankrupt at record rates as a result of Trump's trade policies.

But in 2018, the U.S. exported fewer goods compared with how much it bought.

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

The Commerce Department said Wednesday that - despite more than two years of President Trump's "America First" policies - the United States last year posted a $891.2 billion merchandise trade deficit, the largest in the nation's 243-year history. "Would we like that if other countries all of a sudden just unilaterally put major tariffs on us?" The official insisted on anonymity to discuss private conversations.

Going forward. For days, there have been reports of progress in the trade talks between the US and China and while negotiators will take notice of the deficit number, it's not clear exactly whose hand it strengthens in the ongoing talks. Those lower costs have indeed contributed to the loss of USA factories to foreign countries and devastated vast swaths of the industrial Midwest.

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Chalk up that risk - higher borrowing costs - as something that might work to cap gains in USA stocks. Ironically, the administration's tax cuts may have actually helped to increase the trade deficit by juicing spending on overseas goods by consumers and companies. 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 USA and China.

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

Wednesday's figures illustrated how the trade war boosted the trade deficit with China: merchandise exports to the Asian nation fell $US9.6 billion a year ago, while imports rose $US34 billion.

Trump has repeatedly said that our trade deficit is costing us jobs. But there are also secondary effects. As a result of retaliatory measures imposed by Beijing, China's purchases of American soybeans, wheat and sorghum fell by nearly $10 billion previous year.

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Nor have the tariffs provided the negotiating leverage that Trump sought. Adjusted for inflation, December was the highest imbalance on trade goods in USA history.

The trade deficit has deteriorated despite the White House's protectionist trade policy, which President Donald Trump said is needed to shield USA manufacturers from what he says is unfair foreign competition.

China's ceremonial legislature was poised this week to back a law that would discourage officials in the country from pressuring US companies to hand over technology. Non-economists aren't so careful: If it happens on a politician's watch, he owns it. Donald Trump has been president for 775 days now, three-quarters the length of the Kennedy presidency (somehow it seems much longer).

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.

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It's also interesting that auto imports into the USA were at an all-time high in these latest numbers.

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