Trade deficit at highest level

By Don Lee - Los Angeles Times

WASHINGTON (McClatchy) — The U.S. trade deficit widened last year to the highest level since 2008, fueling criticism that President Trump has done little to make good on his promise to curb America’s long-standing imbalance with the rest of the world, particularly China.

Last year’s trade shortfall in goods and services totaled $566 billion, an increase of 12 percent from 2016, the Commerce Department said Tuesday. The deficit had changed little in the prior two years.

The larger-than-expected trade imbalance reflected an expanding American economy. Growing investment and spending in the U.S. mean businesses and consumers bought more foreign goods, from crude oil to computers to cellphones.

But the other side of the coin is that U.S. exports, while also increasing in December and all of 2017 — with more shipments of things like oil, industrial machinery and aircraft engines—still did not grow as much as imports. Nor did U.S. exports of services, such as licensing fees and management services, rise enough to make up for the shortfall in the exchange of merchandise.

The result is a net trade deficit that could lower the calculation of U.S. economic growth in last year’s fourth quarter. A weakening of the dollar and stronger economies abroad should help lift American exports this year, but imports also are likely to keep expanding.

For Trump, the double-digit percentage jump in the trade deficit in his first year in office carries particular political significance. Unlike his predecessors, he has put extraordinary emphasis on the trade balance numbers, regarding them as a key scorecard of U.S. economic health and American commercial relations with individual countries. Most economists don’t share that view.

As a candidate and as president, Trump has promised to upend the way America does business with the world to halt and reverse trade deficits. And with that in mind, his administration has undertaken to renegotiate the North American Free Trade Agreement and the U.S. trade pact with South Korea.

But the new trade data reported Tuesday raised hackles of long-time critics of Washington’s trade policy, and provided fresh ammunition to apply pressure on Trump to follow through on his talk to get tough on trade, especially with China.

While U.S. trade deficits rose with most every region and country in the world, China accounted for nearly half of the $810-billion merchandise trade gap with the world last year. The U.S. bought $375 billion more of goods from China than the other way around.

“The numbers tell the story. He’s been in office a year now and the trade deficit is up,” said Peter Morici, a former chief economist at the U.S. International Trade Commission who has long advocated for an aggressive response to Chinese mercantilist economic behavior.

“It’s very easy to trash someone with a tweet,” Morici said, referring to Trump’s frequent use of Twitter. “It’s much harder to stand up to someone your own size.”

Trump has approved hefty tariffs on Chinese solar panels and South Korean washing machines, but Morici said those “rifle-shot” actions would not make a dent in the overall trade deficit.

The president is considering potentially more significant trade enforcement actions against Chinese steel and aluminum, and his administration is investigating allegations of Chinese theft of intellectual property that could ultimately lead to broad sanctions against China — actions that analysts fear could lead to retaliation from China and trigger a costly trade war.

Trump also has frequently threatened to withdraw from NAFTA if the ongoing negotiations don’t go his way — a threat that he repeated Monday in a discursive speech in Cincinnati.

Tuesday’s report showed the U.S. trade deficit in goods with Mexico rose to $71 billion from $64 billion in 2016, the second largest after China. The United States also has similarly big deficits with Japan and Germany, although they changed little last year.

The goods deficit with Canada, the other NAFTA partner, increased to $17.6 billion in 2017 from $11 billion the prior year.

“It’s not surprising that the deficit is up because in Year One, there has been a wide gulf between Trump’s fiery trade rhetoric and action,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “So the same failed trade policy Trump attacked as a candidate is still in place, outsourcing continues and promised actions remains undone.”

By Don Lee

Los Angeles Times