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Economic Forecasts

U.S. Trade Deficit Headed Up in 2017

Kiplinger's latest forecast on the direction of the trade deficit

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U.S. consumers’ appetite for foreign-made goods, spanning cellphones to cars, is driving up the trade deficit, thwarting the Trump administration’s bid to shrink persistent shortfalls. The deficit on global trade is well on its way toward climbing 4% above the $500-billion gaps posted in 2015 and 2016.

While campaigning and now in office, President Trump has complained that other nations are taking advantage of the United States through unfair trade practices. But the key factor so far this year is a surge in imports, up 7.5% to $952.2 billion in the first four months of this year, from the comparable period a year earlier. That handily outstripped the 6.1% rise in exports to a cumulative $765.6 billion during the same period.

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The dollar’s relative strength against other major currencies helped expand the gap. It makes American-made goods more expensive in foreign markets while simultaneously lowering the price for imported products. In April alone, the deficit on trade with the rest of the world widened 5.2% to $47.6 billion. Imports were up 0.8% and exports fell 0.3%.

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Expect stronger global growth, which will help temper the trade gap. European populist movements that fanned worry about rising protectionism are fading — demonstrated by France’s election of a centrist government — and boosting confidence in the free-trade eurozone. Unemployment is declining in much of Europe and indexes of manufacturing activity are strengthening, which should create demand and a more vibrant export market for American-made machinery and other exported goods.

Still unclear: Where will the Trump administration take trade policy, other than toward shrinking the deficit? It will renegotiate the North American Free Trade Agreement with Canada and Mexico. It won’t restart talks with the European Union, known as the Transatlantic Trade and Investment Partnership. And it pulled out of a proposed 12-nation Trans-Pacific Partnership, which would have brought freer trade to 40% of the world. All these moves make trading partners worry.

The administration’s stance leaves an opening for rivals such as China to expand ties to key Asian markets. U.S. officials insist they want to enter into more bilateral pacts, while shunning agreements that bind multiple countries to a single set of trading rules.

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Sources: Department of Commerce, Trade Data