US Trade Deficit Widens
The trade deficit (or surplus when positive) is the difference in the value of goods that a nation exports minus what it imports. In an ideal world, nations want to run a trade surplus, but for that to happen, somebody else must be running a deficit. In the USA, President Trump used the US trade deficit with the rest of the world as a political weapon (just as a trade deficit can be calculated against a single trading partner, it can be aggregated to give a global figure). Trump pledged that he would end “unfair” trade practices and tackle the US trade deficit. As a part of this strategy, he has entered into a trade war with other countries, notably China, levying tariffs on their exports to the USA with the intention of pricing them out of the US market to the benefit of domestic producers. This is simple protectionism and is bad for global trade and growth for a raft of reasons not least of which is that the targeted nations respond with their own tariffs on US imports.
It will come as somewhat of a disappointment to Trump that despite his actions over (nearly) the last year, the US trade deficit has widened, not closed. It now stands at its worst level since 2008 at $621 billion.
Whilst US exports grew by $148.9 billion last year, this was outstripped by the growth of imports which came in at $217.7 billion above the previous year’s levels. Despite the trade dispute with China, figures show that the deficit widened by $43,6 billion to stand at $419.2 billion. Ironically, US exports to China declined but the US imported more Chinese goods.
Trump’s move to cut taxes pushed the value of the Dollar higher against major currencies, making US exports less competitive (even without retaliatory tariffs), but it also gave a boost to domestic consumption, some of which was satisfied by imported goods.