Trade Deficit Soars to Highest Level Since 2008

The U.S. trade deficit widened in December to its highest level since 2008, highlighting the urgent need for an “American First” trade policy.

The trade deficit rose 5.3 percent in December to $53.1 billion, more than expected by economists. For the entire year, the trade gap jumped 12.1 percent to a nine-year high of $566 million, according to data released by the Commerce Department Tuesday.

The trade gap widened despite exports rising 1.8 percent and hitting an all-time high of $203.4 billion. Imports, however, rose by more: 2.5 percent to $256.5 billion.

A widening trade deficit threatens to undermine the Trump administration’s goal of achieving 3 percent or better economic growth. Trade deficits subtract from gross domestic product. In the fourth quarter of 2017, a larger than expected trade deficit depressed economic growth by slightly more than a full percentage point, so that the economy grew at just a 2.6 percent rate.

Record high imports from China helped drive the deficit higher. The deficit in goods with China jumped 8.1 percent hit a record $375 billion. The deficit with Mexico rose to $71 billion, the second highest on record.

The high level of imports is a product of a strong U.S. economy faced with mercantilist policies abroad. Strong consumer demand drives imports higher, effectively exporting U.S. prosperity to China and other exporters. Tax reform, which is strengthening the economy already, may push the trade deficit even higher.

Trump has said he plans to take a more forceful stance to bring down America’s trade deficit. Tuesday’s Commerce Department data is a reminder that so far these plans have not produced significant results.

 


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