Please enable JavaScript to view the comments powered by Disqus.

Economic Forecasts

U.S. Trade Gap at 10-year High and Growing

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

iStockphoto

GDP 2018 growth is 2.9%; 2.5% for 2019 More »
Jobs Job gains will be around 180,000 per month in 2019 More »
Interest rates 10-year T-notes at 2.9% by end ’19 More »
Inflation 2.2% in ’19, up from 1.9% in ’18 More »
Business spending Up 5% in ’19 as global growth slows More »
Energy Crude trading from $55 to $60 per barrel in June More »
Housing 5.35 million existing-home sales in ’19, down 0.4% More »
Retail sales Growing 4% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

The U.S. shortfall on trade with the rest of the world is at a 10-year high, and steadily widening. The deteriorating trade outlook flies in the face of the Trump administration’s efforts to wrestle down deficits by levying tariffs on imports from friends and competitors alike, particularly China. The United States and China are moving toward a trade deal, as Beijing has offered to buy more U.S. soybeans and other goods to try to shrink the yawning gap. Nonetheless, the overall deficit certainly will increase again in 2019. In the United States, stronger economic expansion than in most of the rest of the world and near-full employment is fueling consumer spending and helping draw in imports. Exports are under pressure in part because a strong dollar raises prices for made-in-America goods in foreign markets.

The Trump administration ramped up pressure against trading partners in 2018, levying tariffs on $250 billion of Chinese imports. It also threatens to penalize another $267 billion worth unless Beijing makes concessions, including greater protection for U.S. copyrights and intellectual property and easier access to Chinese markets. But Washington also subjected allies including Canada and Mexico to steel and aluminum tariffs, despite having negotiated a revamped free-trade pact with them. European allies also had tariffs imposed against them after their steel and aluminum exports were deemed a threat to U.S. national security. That drew retaliatory tariffs against U.S. products, while China responded by scaling back purchases of key American exports including soybeans, cars and metals.

See Also: 10 Companies Already Hurt by President Trump's Tariffs

The deficit on global trade jumped by 12.5% in 2018 to $621 billion and will widen by another 7%-8% this year. In December alone, the deficit soared 19% to $59.8 billion — like the full-year figure, the biggest monthly shortfall since 2008, when the United States was mired in recession. Little wonder that close attention is focused on U.S.-China trade talks, since the shortfall on trade with China jumped 12% to a record $419 billion during 2018 — far and away the largest with any single country or trading bloc. Details of the two top commercial trading partners’ dealings with one another are even more telling: U.S. exports to China dropped 7.4% last year to $120.3 billion, in contrast with a 6.7% increase in imports from China to $539.5 billion, as Americans increased their purchases of electronics, furniture and consumer goods.

Deficits also grew last year with the European Union, Canada, Mexico, Germany and OPEC countries. Translation: A relatively robust U.S. economy is financing a significant portion of growth in many nations that sell to American consumers. Even if a trade agreement is reached with China, as seems likely, it won’t immediately stimulate U.S. exports because China’s economy is slowing, so there’s little likelihood that demand for U.S. products will ramp up soon. Trade is a growing headwind for U.S. GDP expansion in 2019, especially considering that December marked the third month in a row for declining exports, underlining softening global demand.

via e-mail: Kiplinger Alerts — Intelligence for your business success

Sources: Department of Commerce, Trade Data