In this Tuesday, March 5, 2019, file photo the Cape
Kortia container ship heads into the Port of Tacoma in
Commencement Bay. The U.S. trade deficit jumped nearly
19 percent in December, pushing the trade imbalance for
all of 2018 to widen to a decade-long high of $621
billion. The gap with China on goods widened to an
all-time record of $419.2 billion.
WASHINGTON — The U.S. trade
deficit reached its highest sum ever last year, defying President
Donald Trump's efforts and promises to shrink it through his
economic policies. The irony is that those policies likely
contributed to the deficit.
Trump entered office insisting that decades of trade gaps had
crushed the U.S. economy and that he would forge new agreements that
would diminish the deficits.
It hasn't happened.
The government said Wednesday that the U.S. trade gap in goods and
services reached $621 billion last year, its highest total since
2008. And the U.S. deficits in goods with China and Mexico surged to
As president, Trump's signature effort to stimulate U.S. growth —
deficit-funded tax cuts — likely helped fuel the willingness of
American corporations and households to spend, including on imported
goods. That is especially true at a time when much of the rest of
the economic world has weakened and is less likely to buy U.S.
goods. The result has been more imports than exports.
What's more, the tariffs Trump imposed on steel, aluminum and
hundreds of billions' worth of Chinese goods likely contributed to
the trend: During 2018, American companies that import goods from
China appeared to accelerate their spending on them to avoid Trump's
future import taxes.
Here is a look at the trade deficit and its causes and effects:
WHAT IS THE TRADE GAP?
Trump often misrepresents the trade deficit. He has frequently
labeled it an outright economic loss.
"We've been losing, on average, $375 billion a year with China," the
president said in February, referring to the 2017 deficit in goods
between the United States and China. That imbalance surged to $419.2
billion in 2018 under Trump's watch.
Yet the trade gap isn't an outright loss. It simply reflects the
greater value of what the United States imports compared to what it
exports. And it's not necessarily a cause for concern.
Last year's trade deficit paid for smartphones, kitchen appliances,
clothing, auto parts and a whole range of goods that were made more
affordable because of China's lower manufacturing costs. Those lower
costs have indeed contributed to the loss of U.S. factories to
foreign countries and devastated vast swaths of the industrial
Midwest . But lower import prices have also benefited companies and
millions of consumers in ways that boosted the U.S. economy — 70
percent of which consists of consumer spending. The ability and
willingness of Americans to spend, including on imports, is
generally a healthy economic sign.
In its relationship with China, a bigger problem for the U.S.
economy than trade deficits is the widespread suspicion that Beijing
steals intellectual property and requires American companies that
operate there to turn over technology secrets — two issues at the
heart of the administration's negotiations with Beijing. Such
policies weaken the ability of U.S. companies to compete and inflict
billions in losses, according to a report last year by Lee
Branstetter, an economist at Carnegie Mellon University and a fellow
at the Peterson Institute for International Economics.
ARE TRADE GAPS BAD FOR THE ECONOMY?
In the accounting for the nation's gross domestic product — the
broadest gauge of the economy — a trade deficit does subtract from
growth. But last year's higher U.S. trade gap resulted mainly from
the economy's strength, notably robust spending on imports.
Indeed, the last time the trade deficit narrowed by a significant
amount, it was because the economy was mired in a devastating
downturn — the Great Recession, which lasted from late 2007 to
mid-2009. The trade gap in goods sank 38 percent in 2009 to $503.6
billion. By contrast, in 2018, after years of economic expansion,
the gap in goods had swollen to a record $878.7 billion.
DID ANYTHING ELSE WIDEN THE TRADE GAP?
Kimberly Clausing, an economist at Reed College, points to a sharp
increase in government borrowing. The tax cuts that Trump signed
into law reduced federal revenue by 1 percent of GDP. This meant the
United States had to resort to additional borrowing to help drive
Trump had pledged both faster growth and lower trade deficits. But
his impulse to achieve faster growth through government borrowing
contributed to a wider trade gap.
"A budget deficit is the public sector adding additional borrowing
to the U.S. economy, making the gap between our spending and our
earning even larger," Clausing said. That increase contributed to
the wider trade gap.
Another factor in the increased trade deficit has been a stronger
dollar, another sign of economic health. A higher-valued dollar,
compared with other nations' currencies, makes the goods that
Americans import relatively more affordable and our exports
comparatively more expensive overseas. That disparity has helped
drive up demand for imports over exports.
WHY DIDN'T TRUMP'S TARIFFS CURB THE TRADE DEFICIT?
Researchers at the New York Federal Reserve examined this issue last
year. Tariffs and counter-tariffs make goods more expensive. This
can lead to declines in both imports and exports. When both imports
and exports drop, the trade deficit can't easily improve.
And Trump's threat of tariffs probably worsened the situation last
year, said Stephen Stanley, chief economist Stephen Stanley at
Amherst Pierpont Securities,
The White House initially charged a 25 percent tax on $50 billion of
Chinese imports in June. In September, it imposed a 10 percent tax
on an additional $200 billion of Chinese goods. And it threatened to
escalate that tax to 25 percent at the start of 2019 and essentially
impose tariffs on all Chinese imports unless progress was made in
Trump suspended the additional tariff hikes. But his threat likely
caused importers to bring more of their goods into the United States
before January to avoid the risk of a higher tax, Stanley said. This
action turned out to inflate the trade gap.
HOW DOES THE TRADE GAP AFFECT ORDINARY PEOPLE?
On a day-to-day basis, not very much. The U.S. economy amounts to
about $20 trillion a year, a sum so huge it is difficult to fully
fathom. The trade gap last year was equal to only about 3 percent of
But trade battles do have consequences. Trump's tariffs on imported
washing machines, for example, caused that sector's prices to shoot
up. And businesses that depend on Chinese imports say they're
grappling with higher prices.
In the view of the vast majority of economists, trade wars of the
kind Trump has instigated benefit no one in the long run. And by
themselves, they don't typically produce any meaningful change in
the trade deficit.