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Economic Forecasts

U.S. Trade Gap Widens Despite Import Penalties

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


GDP 2.7% growth in ’19, down from 2.9% in ’18 More »
Jobs Unemployment rate will decline further in '19 More »
Interest rates 10-year T-notes at 3.6% by end ’19 More »
Inflation 2.4% at end ’19, unchanged from end ’18 More »
Business spending Up 7% in ’18, boosted by expanded tax breaks More »
Energy Crude trading from $65 to $70 per barrel in March More »
Housing Price growth: 5.0% by end of ’18 More »
Retail sales Growing 4.5%% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’18 More »

The United States’ global trade shortfall keeps widening amid an expanding tariff war. Despite adopting “America first” policies, the Trump administration ignited a trade war with rival China and raised hackles among traditional allies in Europe and North America. September was the fourth month in a row that saw a fatter deficit. The White House levied penalties on $250 billion of Chinese imports and threatened to hit another $267 billion more, covering virtually everything China sends to the United States. Tariffs are still in place against steel and aluminum imports from most countries, including Canada and Mexico, even after the North American nations renegotiated a free-trade pact. As a result, tit-for-tat import-duty battles are raging between the United States and its NAFTA partners, and with Europe as well.

China is the main target of U.S. trade ire. It runs the biggest bilateral deficit with Washington and engages in practices that the Trump administration strongly opposes, including forcing U.S.-based companies to share technology know-how. President Trump indicated, days before November midterm elections, that the world’s two largest economies were making progress, but prospects for an agreement seem a long way off. U.S. officials insist Beijing must further open its markets, step up copyright protection, scale back state support for key industries, and reduce the role of state-owned enterprises. Trump and Chinese President Xi Jinping will meet on the sidelines of a Group of 20 summit in Argentina later this month to discuss the issue.

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September saw the deficit reach $54 billion, a seven-month high. But it isn’t all bad news: a strong U.S. economy, underpinned by flush consumers and bustling factories, draws in more imports. Both imports and exports rose by 1.5% in September. U.S. buyers increased purchases of foreign-made capital goods, such as computers, as well as consumer goods including clothing and toys. U.S. exports of industrial supplies, including petroleum, set a record in September. The deficit will likely climb 7%-8% above last year’s $552.3 billion total by the end of 2018 — higher than the 5%-6% we originally foresaw. The strength of U.S. demand, fueled by low unemployment and robust factory activity, is drawing in more and more imports. At the same time, there is some softening in growth among major trading partners in Europe. And a relatively strong greenback pressures export prices, putting the brakes on some overseas sales.

The deficit with China reached a record $40.2 billion in September. It was $38.6 billion in August. Reflecting the effect of Beijing’s retaliatory tariffs, the value of American soybean exports plunged to $1.79 billion, a 29% reduction. China, the world’s largest soybean importer, is purchasing more and more crops from Brazil and other producer-nations.

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Sources: Department of Commerce, Trade Data