In a blow to Trump, America's trade deficit hit record US$891b

[WASHINGTON] America's trade deficit in goods with the rest of the world rose to its highest level in history last year as the United States imported a record number of products, including from China, widening the deficit to US$891.3 billion and delivering a setback to President Donald Trump's goal of narrowing that gap.

The increase was driven by some factors outside Trump's control, like a global economic slowdown and the relative strength of the US dollar, both of which weakened overseas demand for American goods. But the widening gap was also exacerbated by Trump's US$1.5 trillion tax cut, which has been largely financed by government borrowing, and the trade war he escalated last year.

It is a case of textbook economics catching up with some of Trump's unorthodox economic policies. Economists have long warned that Trump's tax cuts would ultimately exacerbate a trade deficit he has vowed to reduce, as Americans, flush with extra cash, bought more imported goods.

His trade war with Beijing also widened the gap: Stiff tariffs on Chinese goods helped slow China's economy, crimping American exports, which declined nearly 50 per cent in December from the same month a year before.

"All countries run trade deficits whenever they consume more than they produce," said Kimberly Clausing, an economist at Reed College in Oregon. "And when we borrow to finance tax cuts, like we did with the Tax Cuts and Jobs Act, we make these imbalances worse."

Trump has long boasted that his trade policies would reduce that gap, which he views as a measure of whether partners like China and the European Union are taking advantage of the United States, a diagnosis few economists share.

While Trump sees the trade deficit as a sort of economic score card for which country is on top, most economists disagree with this perspective, viewing trade deficits as a sign of neither economic strength nor weakness, but a function of macroeconomic factors like investment flows, fluctuations in the value of currency and relative growth rates.

And as the trade deficit widens, Trump's focus on it has resulted in a particular irony: By his own metric, the president is failing to right America's global trading relationships. Yet many of the president's critics do not blame him for this, saying some fluctuations in the trade deficit are largely beyond his control.

NYT