Trump's Trade War Forces US Trade Deficit To Hit Highest In 10 Years

The U.S. trade deficit soared to a 10-year high of $621 billion in 2018 -- the largest since 2008 -- clearly proving president Donald Trump’s protectionist trade policies continue to backfire and are hurting the U.S. economy instead.

It also confirms the futility of Trump’s trade war aimed at slashing consumer-demand driven deficits with major U.S. trading partners.

The deficit last year was almost 19 percent higher compared to the total for 2017. The total annual U.S. merchandise trade deficit jumped to $891 billion in 2018, with the surplus in services reducing this amount to $621 billion, said the U.S. Department of Commerce.

The Commerce Department said the December trade deficit of $59.8 billion was the largest since October 2008. The actual deficit also exceeded economists’ expectations for a $57.9 billion shortfall, as exports fell for a third straight month while imports again rose.

Particularly galling for the Trump administration is the increase in the trade deficit with China, which rose 12 percent to hit a new record at $419 billion last year despite punishing tariffs levied on that country’s exports to the U.S. Political analysts now surmise the much higher trade deficit bodes ill for the chances of the U.S. and China reaching a mutually advantageous agreement in ongoing trade talks.

The U.S. posted record imports from 60 countries in 2018, led by China, Mexico and Germany. Merchandise imports soared to a record $2.6 trillion last year.

Analysts noted with irony the U.S. trade deficit has deteriorated despite Trump’s protectionist trade policies that allegedly protect U.S. firms from what Trump claims is unfair foreign competition. They also said American consumers continue to patronize imported smartphones, laptops and computer accessories, most of which are made in China.

Analysts said the U.S. trade deficit will expand further. They forecast Trump might now redouble his efforts to impose more and heavier tariffs on trading partners such as Germany and the European Union, for instance.

They said Trump’s $1 trillion in tax cuts and higher government spending boosted domestic consumption thereby fueling imports. At the same time, the strong dollar dissuaded foreign buyers from purchasing U.S.-made goods, “making a mockery of the White House’s push to reduce the trade deficit”.

Alarmingly, some analysts now warn Trump will “up the ante” to distract attention from the deteriorating trade situation. There is strong likelihood the ongoing trade talks with China will fail to attain any of the main objectives sought by the Trump administration.

“The chances of a deal with China this month look a bit weaker now, while more trade conflict with Europe seems increasingly likely,” said Chris Beauchamp, chief market analyst at online trading firm IG.

“The assumption now is that trade wars will intensify, and that growth will suffer as a result.”

The trade deficit has gotten far worse despite Trump imposing tariffs on $250 billion worth of goods imported from China. China retaliated by levying higher import taxes on $110 billion worth of American products.

Trump worsened the trade war by imposing duties on steel and aluminum made in the EU, Canada and Mexico. Trump has now threatened to end the preferential trade treatment that allows India to export $5.6 billion of goods duty-free to the U.S. He also wants to strip Turkey of its GSP status.