HomeFinanceTrump's tariff war pushes US trade deficit to 10-year high

Trump’s tariff war pushes US trade deficit to 10-year high

  • Trade imbalance rose to $621bn in 2018 despite new tariffs
  • Deficit jumped 19% in December alone

The US trade deficit hit a 10-year high in December, dealing a blow to Donald Trump’s efforts to restrict imports, especially from China, with protectionist trade tariffs.

The gap between the goods US companies sell to China and Chinese imports ballooned to a record $419bn (£318bn), while the total deficit in goods with all countries jumped to $891bn. A surplus in services trade was unable to prevent the overall deficit for 2018 from rising nearly 19% in December to a decade-long high of $621bn, the commerce department said.

With US consumers continuing to demand imported phones, laptops and computer accessories, mostly from China, analysts said the trade gap was likely to widen further and forecast that the US president could now redouble his efforts to impose tariffs.

Exports, which fell for a third month in a row, also weakened in response to slowing global demand and a strong dollar, which is making US-made goods less competitive on the international market.

Chris Beauchamp, chief market analyst at the spread-betting firm IG, said Trump’s $1tn of tax cuts and higher government spending had boosted domestic consumption and increased imports. At the same time, the high value of the dollar had discouraged foreign buyers from purchasing US-made goods, “making a mockery of the White House’s push to reduce the trade deficit”.

But he warned investors to expect the president to “up the ante” in a bid to distract attention from the deteriorating trade situation.

“The chances of a deal with China this month look a bit weaker now, while more trade conflict with Europe seems increasingly likely. The assumption now is that trade wars will intensify, and that growth will suffer as a result,” Beauchamp said.

The trade deficit has worsened despite the White House’s protectionist trade policy, which the president put in place last year, saying it would shield US manufacturers from unfair foreign competition.

Trump imposed tariffs on $250bn worth of goods imported from China, including steel, aluminium, solar panels and washing machines, provoking China to hit back with duties on $110bn worth of American products, including soybeans and other commodities.

Plans to impose tariffs on a further $200bn of Chinese imports were delayed earlier this month while talks between the two sides continued.

The US has also slapped duties on steel and aluminium made in the EU, and Trump has now threatened to end the preferential trade treatment that allows India to export $5.6bn of goods duty-free to the US.

The US received record imports from 60 countries in 2018, led by China, Mexico and Germany. Imports of goods hit a record $2.6tn last year.

Trump said last week that his administration has a “big team of people, very talented people, over in China right now, negotiating on the China deal.

“It’s going along very well. We’ll see what happens, but I think it’s going along very well. They’re showing us tremendous respect,” he added.

The US treasury secretary, Steve Mnuchin, along with the trade negotiator Robert Lighthizer are known to be pressing for Beijing to agree cuts to subsidies for Chinese exporters and tough measures to protect American intellectual property.

Trump has also claimed that the yuan has been artificially depressed to boost Chinese exports, though most economists attribute the difficult situation for American exporters to the strong dollar.

The downbeat trade data, publication of which was delayed by the US government shutdown, now stand alongside reports of weak retail sales, construction spending, housing starts and business spending on equipment in setting the economy on a low-growth trajectory this quarter. The US economy grew 2.6% on an annualised basis in the last quarter of 2018, slowing from the third quarter’s brisk 3.4%.

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