U.S. trade deficit hits 10-year high as Trump trade wars backfire

Trump dealt blow as US trade deficit jumps

US trade deficit hits 10-year high as Trump trade wars backfire

That's certain to add pressure on Trump to close a trade deal with China to boost USA exports and remove punishing tariffs against American farmers and other businesses.

In 2018, America's trade deficit in goods with China - the gap between the value of US goods that China buys and the higher value of what it sells to the USA - swelled to a record $419.2 billion, according to a Commerce Department report Wednesday.

The data showed the deficit jumped almost 19 percent in December. "There's a lot going on below the surface here, " he said.

"Workers in very Republican counties bore the brunt of the costs of the trade war", the report said, "in part because retaliations disproportionately targeted agricultural sectors, and in part because USA tariffs raised the costs of inputs used by these counties". As consumers increased their spending, purchases of imported goods rose while the overvalued dollar weighed on exports. That is especially true at a time when much of the rest of the economic world has weakened and is less likely to buy US goods. "When we impose a tariff, it is the domestic consumers and purchasers of imports that bear the full cost of the tariffs", said David Weinstein, an economics professor at Columbia University, who co-authored one of the papers.

It has been evident for months that the President was failing to shrink a trade gap that he calls "unsustainable" and that he says represents a massive transfer of wealth from Americans to foreigners.

The jump in the so-called real goods trade deficit suggests that the drag from trade on fourth-quarter gross domestic product growth was probably bigger than the 0.22 percentage point estimated by the government last week.

Many economists have pushed back against Trump and his understanding of what a trade deficit means.

The outcomes are undermining the administration's stance, and Trump's own rhetoric, that trade deficits reflect a zero sum game where economies with surpluses are winners and those with deficits losers; that America's persistent deficits were the result of foreigners unfairly taking advantage of the US.

New data shows that the trade gap between the USA and China widened a year ago by $43.6bn to $419.2bn as exports of American products and services fell, but imports from China rose.

Prior to that, at the G20 summit in Argentina in December, Trump and Chinese President Xi Jinping agreed upon a 90-day truce to allow room for a new trade agreement. Derek Scissors, resident scholar at American Enterprise Institute calculates the tax cuts could boost the trade deficit by $200 billion. Computer imports also increased 0.7 billion USA dollars.

On an annual basis, the trade gap widened 12.5%. While stock futures registered small gains in the hours after the news, US equities have been down in the three days since. That typically means Americans buy more from other nations.

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. All told, the US tariffs covered roughly half of what the USA buys from China.

The strong dollar matters because it has led to near-record deficits in manufactured goods and non-oil goods that are being masked by increases in exports of oil and services, Scott said.

"In particular, economic weakness in China and Europe and trade-related uncertainties are dampening trade volumes". -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.

The Fed said slowing global growth and the government shutdown weighed on the USA economy at the start of the year but that it continued to grow.

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.

In the view of the vast majority of economists, trade wars of the kind Trump has instigated benefit no one in the long run.

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