Trade Deficit Forecast

Economic Forecasts

U.S. Exports, Imports Fall as Trade War Grows

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

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GDP 2019 growth will be 2.3%; 1.8% in 2020 More »
Jobs Job gains of about 170,000 per month in '19 More »
Interest rates 10-year T-notes staying around 2% until trade war ends More »
Inflation 2.3% in ’19, up from 1.9% in ’18 More »
Business spending Up 5% in ’19 as global growth slows More »
Energy Crude trading from $50 to $55 per barrel in October More »
Housing 5.35 million existing-home sales, down 1.1% in ’19 More »
Retail sales Growing 4.5% in '19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

An intensifying tariff battle with China is beginning to crimp trade flows, but it isn’t shrinking the U.S. trade deficit. President Trump says he will levy a 10% tariff on $300 billion of Chinese imports starting September 1 — on top of the $250 billion of goods already being taxed at 25% — citing his frustration that Beijing hasn’t yet agreed to a deal on trade. The United States declared a truce in May, but Trump says China reneged on promises to buy more farm products, so he is returning to a previous strategy of coupling punitive tariffs with future negotiations. Virtually everything that China ships to U.S. markets will be subject to tariffs after September 1. China warns that it will retaliate, which implies that the world’s two leading economies are digging in for a lengthy fight.

There’s trouble on other fronts too, including with the European Union, which is reluctant to open up its agricultural markets to U.S. competition. So prospects for a free-trade pact between Washington and Brussels are bleak. On a positive note, the United States has withdrawn a threat of tariffs against Mexico after successfully pushing it to toughen up its border policing, but is keeping the option open if Mexico doesn’t help stem illegal immigrant flows. The United States also has brandished threats of tariffs on auto imports from Germany and other European countries if trade talks there falter.

China is the principal target of U.S. ire because it is the biggest single source of hefty deficits on trade. Washington is seeking a binding, enforceable deal with Beijing to protect U.S. intellectual property from theft and increase access to Chinese markets for American companies. Talks appeared to be progressing as recently as May, but have since stalled. Trump and Chinese President Xi Jinping agreed in June to restart negotiations, but the talks have not progressed and both sides are lobbing recriminations about who is responsible for the impasse. The International Monetary Fund and the World Bank each warn that the widening dispute is harming the global economy. The Federal Reserve cited uncertainty stemming from trade tensions among the reasons for its decision to cut its benchmark interest rate. Trump is calling upon the central bank to do more rate cutting to back up his stance in talks with China.

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

The trade deficit narrowed fractionally during June to $55.2 billion. Both exports and imports dropped: Not a promising development, since a strong domestic and global economy would have pushed both categories upward. Sales to overseas markets of made-in-America consumer and capital goods and motor vehicles weakened from May levels. But imports of consumer goods and clothing, cell phones and crude oil also were softer in June than a month earlier. Still, the trade gap in the first six months of the year grew by 8% from the comparable first half of 2018, to $316.3 billion. The six-month data show that the value of U.S. exports peaked in May 2018, just before the United States levied tariffs on steel and aluminum imports from much of the rest of the world and provoked retaliation against U.S. exports. Imports peaked a few months later, in October 2018, and are starting to fall more than exports as trade volumes decline.

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Notwithstanding the White House’s focus on shrinking the trade deficit, expect it to widen by 7% to 8% for all of 2019, to about $670 billion. It’s up by 8% already in the first half of this year from the comparable first six months of 2018. The U.S. economy remains relatively strong and will keep drawing in imports from the rest of the world. By contrast, China, also a top export target for much of the rest of the world, is losing some momentum and may be a less vibrant market not only for U.S.-made goods but for those of other exporting nations as well.

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Sources: Department of Commerce, Trade Data