In Blow to Trump, Americaʼs Trade Deficit in

Goods Hits Record $891 Billion

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The United States trade deficit in goods reached $891.3 billion in 2018 — the highest it’s ever
been. Mark Ralston/Agence France-Presse — Getty Images

By Jim Tankersley and Ana Swanson

March 6, 2019 641

WASHINGTON — America’s trade deficit in goods with the rest of the world
rose to its highest level in history last year as the United States imported a
record number of products, including from China, widening the deficit to
$891.3 billion and delivering a setback to President Trump’s goal of narrowing
that gap.

The increase was driven by some factors outside Mr. Trump’s control, like a
global economic slowdown and the relative strength of the United States
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demand for American goods. But the
widening gap was also exacerbated by Mr. Trump’s $1.5 trillion tax cut, which
has been largely financed by government borrowing, and the trade war he
escalated last year.
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unorthodox economic policies. Economists have long warned that Mr. Trump’s
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His trade war with Beijing also widened the gap: Stiff tariffs on Chinese goods
helped slow China’s economy, crimping American exports, which declined
nearly 50 percent in December from the same month a year before.

ADVER T ISEM ENT

“All countries run trade deficits whenever they consume more than they
produce,” said Kimberly Clausing, an economist at Reed College in Oregon.
“And when we borrow to finance tax cuts, like we did with the Tax Cuts and
Jobs Act, we make these imbalances worse.”

The trade deficit is the difference between how much a country sells to its
trading partners and how much it buys. It generally includes both goods and
services, though Mr. Trump has focused almost exclusively on the deficit in
goods. He has long boasted that his trade policies would reduce that gap,
which he views as a measure of whether partners like China and the
European Union are taking advantage of the United States, a diagnosis few
economists share.

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Instead, in a year in which Mr. Trump imposed tariffs on steel, aluminum,

washing machines, solar panels and a variety of Chinese goods, the overall
trade deficit grew 12.5 percent from 2017, or nearly $70 billion, to $621 billion,
the Commerce Department said Wednesday. Although the United States
recorded a trade surplus in services, the trade deficit in goods with the
 European Union and Mexico grew more than 10 percent as imports rose faster
than exports.

In December, the overall deficit in goods and services, which includes

everything from computers and washing machines to tourism and intellectual
property, rose 19 percent from the previous month, to $59.8 billion. It was the
highest monthly trade deficit since 2008, when the American economy was
mired in recession.

Several global economic factors explain the widening of the deficit last year.
China’s slowdown has reduced consumer appetite for American goods, as has
slowing growth in Europe. The strength of the dollar in global currency
markets has made it cheaper for American consumers to buy foreign-made
goods, and more difficult for foreign customers to buy American-made ones.

ADVER T ISEM ENT

That helped fuel a record number of Chinese goods imported into the United
States. The trade gap in goods between the United States and China hit $419
billion in 2018, deepening a bilateral deficit that has been a particular source
of anger for Mr. Trump.

Trade balance between the United States and select countries, 2018
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Imports

Exports $419 billion

The trade deficit is the value of imported goods less the

value of exported goods.
European Union

Imports
 Exports 169

Mexico

Imports

Exports 82

Canada

Imports

Exports 20

Note: Figures are not seasonally adjusted | Source: The United States Bureau of Economic Analysis • By
The New York Times

While Mr. Trump sees the trade deficit as a sort of economic scorecard for
which country is on top, most economists disagree with this perspective,
viewing trade deficits not as a sign of economic strength or weakness, but as a
function of macroeconomic factors like investment flows, fluctuations in the
value of currency and relative growth rates.

And as the trade deficit widens, Mr. Trump’s focus on it has resulted in a
particular irony: By his own metric, the president is failing to right America’s
global trading relationships. Yet many of the president’s critics do not blame
him for this, saying some fluctuations in the trade deficit are largely beyond
his control.

“The stronger trade deficit in the short run is telling you we’re importing
more, so it’s not a particular alarming development,” said Lawrence H.
Summers, a Harvard economist who directed the National Economic Council
under President Barack Obama. “The president notwithstanding, I’d rather
live in a country that capital is trying to get into, rather than get out of. The
reason we have a trade deficit is people are investing in America.”

Mr. Trump has aimed tariffs at China, Europe, Canada and Mexico to help
reset the trade balance with other countries that he says engage in unfair
practices to gain a competitive edge in global trade.

That is particularly true with China, which Mr. Trump and many business
groups say tilts the balance of power by providing state subsidies, blocking
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foreign competition and engaging in other tactics. His top advisers are
pressing Beijing to commit to a specific target for reducing the bilateral trade
imbalance between the countries. While the Chinese have offered to make
large purchases of American products, including soybeans and liquefied
natural gas, they have resisted setting a specific dollar target for the trade
balance, arguing that such a metric is largely beyond their control.
 In a congressional hearing last week, Robert Lighthizer, Mr. Trump’s top trade
negotiator, held up a chart that showed a steadily rising trade deficit with
China. Also marked on the chart were various negotiations past
administrations had held with China, which Mr. Lighthizer said had failed to
stem the deficit’s rise. He called the deficit with China, along with China’s
unfair trade practices, “major threats to our economy.”

ADVER T ISEM ENT

The value of China’s currency, which is determined partly by the market and
partly by the government, weakened against the dollar last year, blunting the
effect of Mr. Trump’s tariffs by making Chinese goods even cheaper. The
currency began rising again in the fall, as President Xi Jinping of China met
Mr. Trump in Argentina late last year to begin hammering out a trade pact,
said Brad Setser, a senior fellow for international economics at the Council on
Foreign Relations.

“China certainly allowed the market to push the value of the yuan down
against the dollar over the summer,” Mr. Setser said.

As part of the trade deal in the works, the United States has secured a
commitment from Beijing not to artificially weaken its currency, according to
administration officials.

The relative
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widening deficit, along with the $1.5 trillion tax cut Mr. Trump signed in 2017,
which accelerated growth last year.

Money from the tax cuts helped Americans buy more imported goods than
ever in 2018. And to finance the tax cuts, the government needed to borrow
more dollars, some of which came from foreign investors. Foreigners
primarily get those dollars by selling more goods and services to Americans,
 which will necessarily widen the trade gap, an effect that many economists
predicted at the time Mr. Trump signed the tax cuts.

The tax cuts are also helping to swell the federal budget deficit, which Mr.
Trump similarly pledged to reduce — and, in fact, eliminate — as a candidate.
On Tuesday, Treasury Department figures showed the budget deficit
widening, and it is on track to top $1 trillion this fiscal year. Revenue from
personal and corporate income taxes was down by 9 percent in January,
compared with the same month a year ago.

As with the trade deficit, many economists are growing less alarmed by the
budget deficit than in previous years. However, Federal Reserve officials and
some economists warn that federal borrowing is growing too quickly and will
ultimately swamp the American economy, with the United States paying huge
sums of interest on the debt, diverting funds from social safety net programs
like Medicare and Social Security. The Fed chairman, Jerome H. Powell,
warned lawmakers at a House hearing last week that the federal debt was on
an “unsustainable” path.

Mr. Powell was asked during the hearing if he would also say that the trade
deficit was unsustainable. “I don’t think I would say that,” he replied.

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A version of this article appears in print on March 7, 2019, on Page A1 of the New York edition with the headline: U.S.
Trade Deficit Under President Bulges to Record. Order Reprints | Todayʼs Paper | Subscribe

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