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Economic Forecasts

Trade Deficit Widening in 2017

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

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GDP 2.1% growth in ’17, following 1.6% in ’16 More »
Jobs Hiring pace should slow to 160K/month in '17 More »
Interest rates 10-year T-notes at 3% by end '17 More »
Inflation 2.4% in '17, up from 2.1% in '16 More »
Business spending Rising 3%-4% in ’17, after flat ’16 More »
Energy Crude oil trading from $55 to $60 per barrel in May More »
Housing Single-family starts up 9% in '16, 11% in '17 More »
Retail sales Growing 3.9% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

The U.S. shortfall on trade with the rest of the world is set to expand by about 4% this year, driven by a rising dollar and a growing economy that is drawing in imports. The deficit hit a four-year high of $502.3 billion in 2016, up 0.4% from the prior year and the widest gap since 2012. That is likely to add to the Trump administration’s frustration over the size and persistence of the gaps with major trade partners.

It’s difficult to shrink the deficit because steady U.S. consumer spending is driving imports. While the monthly deficit on goods-and-services trade moderated slightly in December, imports were up by 1.5% in value, to their highest level since March 2015. The positive news was that exports also jumped, gaining 2.7% from a month earlier, for the best foreign sales since April 2015.

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A strong U.S. dollar and rising incomes will further whet consumers’ appetites for imports in 2017. The greenback has appreciated about 3% since last November’s presidential election and the economy is approaching full employment — all of which adds to consumers’ purchasing power. While global demand is solid, it doesn’t match that of the United States. China’s economy is slowing and European Union members are posting only moderate growth.

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The trade deficit with China — the biggest with any country — fell last year. The roughly $20-billion decline to $347 billion was somewhat encouraging, but the shortfall with Mexico grew and there were also big red-ink tallies with other key trade partners, including Japan and Germany. Each of those countries has experienced a substantial devaluation of its currency’s value against the dollar, which effectively makes its products — from clothing and cars to computers — cheaper for American consumers, meaning that the pressure from rising imports will be sustained.

Sources Department of Commerce, Trade Data