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

U.S. President Donald Trump needs to step forward and take brazen braggadocious credit for the trade

U.S. President Donald Trump needs to step forward and take brazen braggadocious credit for the trade

"For 2018, the goods and services deficit was $621.0 billion, up $68.8 billion from $552.3 billion in 2017", the US Department of Commerce's Bureau of Economic Analysis said in a press release on Wednesday. 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.

Trump's supporters insist he's tackling that via his trade negotiations with China and other U.S. trading partners.

There are a few takeaways from this news, including that trade was probably a bigger drag on growth last year than previously forecast.

During his recent speech at CPAC, the president said "And now, last year, we had nearly a $500 billion trade deficit with China". He has made reducing the gap a primary component of his economic and foreign policy, launching a multi-billion dollar trade war with China while adding new tariffs to imports from allies in Europe, North America and other countries.

As Ben Walsh points out at Barron's, Wednesday's trade deficit figures strengthen the Trump administration's hand because they demonstrate that China has much more at stake than the keeping tariffs from escalating.

"If you want to lower the trade deficit, have a recession", said Reinsch. USA and Chinese officials have recently signaled that they're close to some kind of agreement, although China has only bolstered its commitment to investing in and developing its technology sector and questions about how to enforce any trade rules remain.

Still, the biggest takeaway from the new trade data is not that the tariffs predictably failed to do what Trump thought they would; it's that the US economy is powered by the individual decisions of millions of people and businesses, and that entity is far too complex and powerful to be controlled by the White House.

Today, the USA economy is healthy, with economic growth relatively robust.

Trump and his supporters have cast the blame in part on the US Federal Reserve, arguing that its decisions to hike rates past year contributed to the strengthening of the dollar. That typically means Americans buy more from other nations.

Farmers in the Midwest, a key part of Trump's voter base in 2016, are going bankrupt at record rates as a result of Trump's trade policies.

As cash-flush businesses and consumers increased their spending, purchases of imported goods rose while the overvalued dollar weighed on exports.

Following the same trend as with China, US export growth to the EU was eclipsed by imports of European goods and services to America, which a year ago rose to $487.9bn.

"Perhaps Donald Trump will now discover that tweets and bluster alone won't dramatically shrink the trade deficit". "A competitive dollar is the most important tool we have to spur economic growth and job creation in the U.S. economy", said Michael Stumo, chief executive of the Coalition for a Prosperous America.

The dollar was little changed against a basket of currencies, while U.S. Treasury prices rose. And instead of pulling back on support for technology development, Premier Li Keqiang, in his report to the national legislature on 2019 government goals, promised even more such support. Exports are weakening because of slowing global demand and a strong dollar, which is making US -made goods less competitive on the worldwide market. 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.

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