[WASHNGTON] The Commerce Department said Wednesday that  despite more than two years of President Donald Trump's "America First" policies - the United States last year posted a US$891.2 billion merchandise trade deficit, the largest in the nation's 243-year history.

The trade gap with China also hit a record US$419 billion, underscoring the stakes for the president's bid to reach a deal with Chinese President Xi Jinping as soon as this month.

The department's final 2018 trade report, which was delayed by the government shutdown, showed that the US bought far more in foreign goods than it sold to customers in Europe, Asia, North America and Africa. The goods shortfall topped the 2006 record of US$838.3 billion, set as the housing bubble was peaking, and marked the third consecutive year of rising deficits.

A broader measure of the nation's trade performance, which includes the services sector, showed a narrower, but still large US$621 billion deficit. That reflected a deterioration of more than US$100 billion from the figure that Mr Trump inherited from President Barack Obama.

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. Over the past year, even as he imposed tariffs on foreign-made solar panels, washing machines, steel, aluminum and assorted goods from China, imports roared ahead of exports.

The president thus begins his re-election drive with a core campaign promise unfulfilled - and with a recent flurry of economic research showing that his embrace of tariffs is damaging the US economy.

Economists say the trade deficit is swelling because of broad economic forces, including a chronic shortfall in national savings that was exacerbated by last year's US$1.5 trillion corporate and personal income tax cut. As cash-flush businesses and consumers increased their spending, purchases of imported goods rose while the overvalued dollar weighed on exports.

"Macroeconomics end up ruling. You can't wish it away. You can't tariff it away," said William Reinsch, a former Commerce Department official now at the Centre for Strategic and International Studies.

The Commerce Department report comes amid indications that negotiations with China over a sweeping trade agreement may be in their final weeks. China has offered to buy a reported US$1.2 trillion in additional American products over the next six years in a deal that reportedly would ease each side's tariffs, usher in changes to Beijing's state-led economic model and include tough new enforcement mechanisms.

But most economists say that such increased Chinese purchases would likely only divert US shipments from other foreign customers, shrinking the trade gap with China but leaving the global balance largely unchanged. With the economy at or close to full employment, US farms and factories have a limited ability to sharply increase output to meet a sudden increase in Chinese orders.

"That reality is not going to change," said economist Matthew Slaughter, dean of the Tuck School of Business at Dartmouth College.

Any deal with China would mark a milestone in Trump's tariff war, though not its end. The Commerce Department on Monday began investigating whether imports of titanium sponges, used in chemical plants and military hardware, represent a national security threat.

The president has used similar studies to impose tariffs on steel and aluminum and has threatened to apply them to imported cars and car parts.

Mr Trump persists with the import levies even as some supporters push for him to also act on other forces fueling the trade deficit, including a robust dollar.

The dollar is now valued 19 per cent above its 10-year average against the currencies of major US trading partners, according to Federal Reserve data.

The high dollar acts as a price increase for American exporters, making it harder to compete with foreign rivals. "A competitive dollar is the most important tool we have to spur economic growth and job creation in the US economy," said Michael Stumo, chief executive of the Coalition for a Prosperous America.

The US typically runs a sizable surplus in its global services trade, which includes spending by foreign tourists and students, financial services or consulting, partially offsetting the larger goods gap.

The best chance of the trade deficit shrinking any time soon would require an economic downturn that no one wants. In 2009, amid the Great Recession, the trade deficit fell 40 per cent from the peak three years earlier to about US$506 billion.

"If you want to lower the trade deficit, have a recession," said Mr Reinsch.

Mr Trump has long been convinced that the United States gets a raw deal from its trade ties. As a New York real estate magnate in the 1980s, he routinely complained about Japanese auto companies and investors who purchased iconic American properties like Rockefeller Center or Pebble Beach.

In a 2016 campaign speech in Pennsylvania, Mr Trump called the trade deficit a "politician-made disaster" and promised swift change. "We can turn it all around - and we can turn it around fast," he said.

Mr Trump has used tariffs or import taxes more aggressively than any American president since the 1930s. In a March 2 speech to a conservative political group, he called them "the greatest negotiating tool in the history of our country" and credited them with bringing trade partners such as China to the bargaining table.

The president has successfully negotiated new agreements with South Korea, North American neighbors Canada and Mexico, and appears close to a deal with China. But it's too early to say what effect - if any - those agreements will have on the deficit.

Changes in US tariffs called for in the South Korean deal took effect only on January 1 while Congress has yet to act on the new North American agreement.

Still, tariffs so far have proven to be a blunt weapon. The president often boasts about how much money the US government is reaping from tariffs.

"Billions of dollars, right now, are pouring into our Treasury," he told the Conservative Political Action Conference on March 2, adding that Chinese exporters are absorbing almost the entire burden of the tariffs.

But a pair of new studies concludes that he is wrong. "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.

Mr Weinstein said the president appears to be relying on a 2018 analysis of data from the 1990s, when the US represented a larger share of the global economy and enjoyed more leverage over exporters in other countries.

Mr Weinstein's study, co-written with Mary Amiti of the Federal Reserve Bank of New York, and Princeton University's Stephen Redding, reviewed what actually occurred last year after US tariffs took effect and concluded that Americans paid the entire tariff bill.

A second study by four economists from the University of California, Los Angeles; Yale University, the University of California, Berkeley; and Columbia University reached the same conclusion.

That study also found that workers in Republican-leaning counties, especially in farm states, suffered the greatest losses from tariffs that US trading partners imposed in retaliation for the president's actions.

Mr Trump's tariffs also may cause US companies to write off sizable investments in their Chinese factories as they scramble to shift operations to safer venues, said the study by Mr Weinstein, Ms Amiti and Mr Redding. If the tariffs continue, about US$165 billion worth of trade would be redirected each year, they added.

The study also found sizable costs relative to any expected benefits. If the tariffs led to the creation of 35,000 new manufacturing jobs - equal to all the steel and aluminum jobs lost in the past decade - they would cost US$195,000 per job, the study found.

"The costs of the trade war are quite large relative to optimistic estimates of any gains that are likely to be achieved," wrote the trio of economists.

WP