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The Growing Trade Deficit Strengthens Trump's Hand in Trade Talks With China

The Growing Trade Deficit Strengthens Trump's Hand in Trade Talks With China

The U.S. trade deficit in goods rose to $891 billion in 2018, its highest number ever, the Commerce Department reported Wednesday. Merchandise imports jumped to a record $2.6 trillion past year.

Despite Washington imposing tariffs on $US250 billion worth of Chinese goods, the goods deficit with China rose to all-time high past year. And by themselves, they don't typically produce any meaningful change in the trade deficit. The shortfall reportedly came due to a 2.1-percent increase in imports to $264.9 billion, while exports saw a decline of 1.9 percent to $205.1 billion. Many businesses are now paying higher costs to import electrical components and other goods from China that aren't made in the United States. But the tariff hikes have since been postponed as the administration has cited progress in trade talks with China.

The Wall Street Journal (WSJ) reported that, as a result of a fall in prices, due to China shifting its source of supplies, U.S. producers had held on to their product in the hope of a better price.

A deteriorating balance in the country's trade in goods was the chief reason behind the worsening trade picture, as Americans continued to buy foreign-made computers and their accessories but sales of capital goods, including those of civilian aircraft, dropped. 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".

Wednesday's figures illustrated how the trade war boosted the trade deficit with China: merchandise exports to the Asian nation fell $9.6 billion past year, while imports rose $34 billion. It's reported that both sides are close to reaching a deal that could include China's purchase of more than $100 billion worth of USA goods every year, including agricultural and energy products.

Analysts said the US trade deficit will expand further.

It remains to be seen whether Trump will agree to a removal of tariffs on Chinese goods, something Beijing is seeking in exchange for large purchases of US products, including soybeans and liquefied natural gas.

With the trade deficit rising and USA businesses increasingly complaining about the pain from tariffs, Trump is under pressure to strike a long-term truce with China. But lower import prices have also benefited companies and millions of consumers in ways that boosted the US economy - 70 percent of which consists of consumer spending.

Douglas Irwin, an economics professor and trade historian at Dartmouth College, said a deal with China that includes promises of big purchases of American goods could help lower the trade deficit in the short-run.

The December trade gap jumped to $59.8 billion, which was also a 10-year high, according to media reports. But while that might be of concern for Trump, many economists disagree with his emphasis on reducing the deficit.

In the accounting for the nation's gross domestic product - the broadest gauge of the economy - a trade deficit does subtract from growth.

Trump views trade as a zero-sum game, in which the USA benefits if other countries lose. While the United States and China are poised to negotiate a deal to end their trade dispute, the proposed deal amounts "much ado about nothing much", as Paul Krugman puts it. All the targeted nations filed complaints to the World Trade Organization (WTO) and introduced mirror measures.


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