U.S. trade deficits hit record high following Trump tariff wars

Senior White House economic adviser Larry Kudlow speaks during a briefing at the White House in Washington

Despite President Donald Trump's repeated promise to shrink trade deficits, it leaped by 12.2% to $621 billion in 2018, after hitting a record high during his first year in office.

But America's dependence on imports appears to have increased after the tariffs that Mr Trump imposed previous year on foreign steel, aluminium and Chinese products.

What does the data say?

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.

The deficit with the European Union, also in a trade standoff with Washington, also rose to a record $169.3 billion, while the gap with Mexico hit a high of $81.5 billion.

In the first 11 months of 2018, the United States trade deficit in goods and services with the world increased $52 billion, or about 10%, from the same period in 2017.

Revision estimates for fourth-quarter GDP will be coming down following an unexpectedly deep $59.8 billion trade deficit in December.

Data for 2019 is not yet available.

The best chance of the trade deficit shrinking any time soon would require an economic downturn that no one wants.

Each country can inflict economic pain on the other, but the latest deficit numbers underscore that the potential magnitude of that pain is greater for the export-dependent Chinese economy. In tandem, those two factors have increased the spending of various USA purchasers, from consumers to corporations to government agencies.

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Between 2017 and 2018, USA exports to China dropped by more than $9 billion, while its imports from China rose by more than $34 billion.

The US is now locked in a trade battle with China over what it claims are unfair trade practices, resulting in tit-for-tat tariff increases on each others' goods.

David Dollar, economist, expert on China and senior fellow at the China Center at the Brookings Institute, told students and faculty the world is nervous about rising protectionism in the USA and America's imposition of trade tariffs on China during a lecture February 26 in Mandeville Hall.

Significantly, the analysis of import price data by Mary Amiti, Stephen Redding and David Weinstein also found that nearly all of the cost of the tariffs was being paid by USA consumers and companies. This led to USA exports of soybeans to drop off by 97 percent during the first seven weeks of the 2018-19 marketing year, compared to what they had been the year before.

The insight into the net costs incurred by the tariffs conflicts with Trump's claim that "billions of dollars are pouring into the coffers of the United States of America because of the tariffs being charged to China".

This is because increased income is likely to bring more consumption, which fuels the need for foreign goods, a fundamental of the trade deficit.

New studies have added to the evidence that the US-China trade war is inflicting pain on US consumers and businesses, even while President Donald Trump insists that the US is well positioned to weather the storm should he back away from a trade deal. We can't have that.

"President Trump has said, and I cautioned, its gotta be a good deal for the United States and its gotta be an enforceable deal", stated Kudlow.

The $500 billion number could be a reference to the total number of all imports from China a year ago, which added up to $505 billion.

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