The U.S. trade deficit in December and for the full year both rose to the highest levels since 2008, underlining the challenges facing the Trump administration’s “America First” trade policies.
For December, the trade gap increased 5.3% to $53.1 billion, topping economists’ estimates of $52.0 billion deficit, while for 2017. it rose 12.1% to $566.0 billion. That represented 2.9% of GDP, up from 2.7% in 2016.
The widening of the trade deficit, ironically, reflects in part the strengthening U.S. economy, with robust domestic demand pushing imports to a record high of $256.5 billion in December. Exports edged up 1.8% to $203.4 billion, the second-highest level ever.
“When Americans are more prosperous, they tend to buy more imported goods,” MarketWatch noted, adding that the U.S. cannot “discourage Americans from buying imported cars, computers or cell phones.”
President Trump has staked a lot of political capital on shrinking the trade gap. As Reuters reports, the administration “believes a smaller trade deficit, together with deep tax cuts, could boost annual economic growth to 3% on a sustained basis.”
Gross domestic product expanded 2.6% in the final three months of 2017, but the higher trade deficit shaved off 1.1 points. And economists expect the GOP’s tax cuts will only add fuel to the surge in imports by putting more money in consumers’ pocketbooks.
“Looking ahead, we expect the trade deficit to widen further in 2018,” said Gregory Daco, chief U.S. economist at Oxford Economics.
Companies are also likely to need to invest in equipment, some of which is bought overseas, to boost production. “Tax reform is probably going to put further pressure on the trade and current account deficit as firms invest in more capital equipment to increase productive capacity,” said Eugenio Aleman, a senior economist at Wells Fargo Economics.
In 2017, the deficit in goods with China — a particular target of Trump — hit a record $375 billion.
“It’s not surprising that the deficit is up because in Year One, there has been a wide gulf between Trump’s fiery trade rhetoric and action,” Lori Wallach, director of Public Citizen’s Global Trade Watch, told the Los Angeles Times.