U.S. trade deficit surges to 10-year high in 2018

Posted March 09, 2019

As Trump said in a 2012 tweet attacking Obama, "China is robbing us blind in trade deficits and stealing our jobs, yet our leaders are claiming "progress" - SAD!" That, of course, is President Trump's aim.

He's wrong about trade deficits reflecting weakness. There is strong likelihood the ongoing trade talks with China will fail to attain any of the main objectives sought by the Trump administration.

There are a few takeaways from this news, including that trade was probably a bigger drag on growth last year than previously forecast. Several other trade agreements are on the table and the Trump administration continues to make changes to trade policies with countries around the world. USA and Chinese officials have recently signaled that they're close to some kind of agreement, although China has only bolstered its commitment to investing in and developing its technology sector and questions about how to enforce any trade rules remain. They reflect broader trends in the economy, including savings and investment rates.

Including goods and services for the entire year, the total deficit is $621 billion, the highest since 2008. We were at the tail end of the Great Recession then, and, because the economy was bad, Americans bought less stuff from overseas. Those lower costs have indeed contributed to the loss of US factories to foreign countries and devastated vast swaths of the industrial Midwest.

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Others have argued that Trump's tariffs have acted as a tax on consumers. Sales overseas increased 6.3% to $2.5-trillion in 2018, also the highest level.

Exports that plummeted for a third month in a row also diminished as an answer to decelerating worldwide demand and a robust dollar which is rendering US-made merchandize less fierce on the global market. "Would we like that if other countries all of a sudden just unilaterally put major tariffs on us?"

So in some ways then, Trump's preferred metric of "winning" is a victim of his own fiscally driven economic success.

Beijing is also resisting US demands to change industrial policies, said Willy Lam, a political analyst at the Chinese University of Hong Kong.

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He has picked trade wars the world over, with friends and foes alike.

The figures follow last week's initial report on fourth-quarter gross domestic product, which showed net exports were a drag on growth for the fourth time in five quarters. Imports rose 2.1 per cent to $US264.9 billion, boosted by foods, consumer goods, computers and aircraft. If the $US270 billion surplus in services (the element of trade that Trump usually ignores) were included it was, at $US621 billion, still the worst in a decade. That typically means Americans buy more from other nations.

News broke this week that Trump intends to essentially revoke preferential treatment on certain Turkish and Indian goods received when imported into the US market, drawing criticism from both countries and potentially opening American exporters up to additional hurdles when trying to reach consumers in those countries.

When it comes to trade relations between the USA and the European Union there is also a deficit.

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Trump's chief trade negotiator, Robert Lighthizer, a year ago concluded a revision of the North American Free Trade Agreement, and he is now in the throes of trying to wrap up a deal with China. There's reason to be skeptical, however, and not only because some of these objectives seem like fantasies. The countries are now trying to reach a new deal.