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US trade deficit rises to nine-year high on robust imports

February 7, 2018 12:00 AM
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US trade deficit rises to nine-year high on robust imports

WASHINGTON: The US trade deficit widened more than expected in December to its highest level since 2008, as robust domestic demand pushed imports to a record high, potentially putting pressure on the Trump administration as it renegotiates trade deals.

The import-driven surge in the trade gap reported by the Commerce Department on Tuesday also suggests a 3 percent annual economic growth may be hard to achieve.

Imports, which subtract from gross domestic product, could get a further boost from a $1.5 trillion tax cut package that became effective in January.

The fiscal stimulus comes when the economy is almost at full employment, which means the resulting increase in demand will likely be satisfied with imports.

"When an economy is at full employment, an acceleration in demand tends to be accompanied by a pickup in import growth and a wider trade deficit," said John Ryding, chief economist at RDQ Economics in New York.

The trade deficit increased 5.3 percent to $53.1 billion, the highest level since October 2008. Economists polled by Reuters had forecast the trade gap widening to $52 billion in December. Part of the rise in the trade gap reflected higher commodity price increases.

The deficit surged 12.1 percent to $566 billion in 2017, the highest since 2008. That represented 2.9 percent of GDP, up from 2.7 percent in 2016.The politically sensitive U.S.-China trade deficit increased 8.1 percent to a record $375.2 billion last year.

President Donald Trump has vowed to shrink the trade gap through his "America First" trade policies, which aim to shut out more unfairly traded imports and renegotiate past U.S. free trade agreements.

And his administration has launched an investigation into China´s intellectual property practices that could lead to major new trade sanctions on Beijing.

"The terms of trade are not completely unfair," said Chris Rupkey, chief economist at MUFG in New York. "Don´t forget it is American companies assembling goods outside the country and then bringing them back in which is the problem with the trade imbalance in goods." The surge in the December trade deficit was flagged by an advanced goods trade deficit report published in late January. When adjusted for inflation, the trade deficit increased to $68.4 billion from $66.5 billion in November.

The jump in the so-called real trade deficit at the end of the year puts trade on course to be a drag on GDP in the first quarter.

Trade subtracted 1.13 percentage point from economic growth in the final three months of 2017.The economy grew at a 2.6 percent annualized rate during that period, helping to lift growth in 2017 to 2.3 percent from 1.5 percent in 2016.

The Trump administration believes a smaller trade deficit, together with deep tax cuts, could boost annual economic growth to 3 percent on a sustained basis.

Late in January, Trump imposed broad tariffs on imported solar panels and large washing machines, and is considering slapping tariffs or quotas on steel and aluminum for national security reasons.

Also read: LTU Karachi collects Rs587bln in first half of 2018/19


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