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

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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, adding to the stiff headwinds faced by the Trump administration’s “America First” trade policies.

The import-driven surge in the trade gap reported by the Commerce Department on Tuesday also suggests 3 percent annual economic growth may be hard to achieve. Imports, which subtract from the gross domestic product, could get a further boost from a 1.5 trillion US dollars tax cut package that became effective in January.

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The fiscal stimulus comes with the economy almost at full employment, which means the resulting increase in demand will likely be satisfied with imports. Companies would also need to invest in equipment, some of which is bought overseas, to boost production.

“Trump’s trade team has not been able to stem the flood of imports into the country,” 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 trade deficit increased 5.3 percent to 53.1 billion US dollars in December, the highest level since October 2008. Economists polled by Reuters had forecast the trade gap widening to 52.0 billion US dollars in December. Part of the rise in the trade gap reflected higher commodity price increases.

The deficit surged 12.1 percent to 566.0 billion US dollars in 2017, the highest since 2008. That represented 2.9 percent of GDP, up from 2.7 percent in 2016.

The politically sensitive US-China trade deficit jumped 8.1 percent to a record 375.2 billion US dollars last year. President Donald Trump has vowed to shrink the trade gap by shutting out more unfairly traded imports and renegotiating free trade agreements.

File photo of US President Donald Trump speaking during a meeting with members of the United Nations Security Council at the White House in Washington, D.C., US, Jan. 29, 2018. /VCG Photo

Trump has repeatedly threatened to terminate the North American Free Trade Agreement unless the 1994 pact linking Canada, Mexico and the United States can be made more favorable to Washington. And his administration has launched an investigation into China’s intellectual property practices that could lead to major new trade sanctions on Beijing.

“Many American factory workers bought into the promise of the president’s trade policy reforms, but they are still waiting for results,” said Scott Paul, president of the Alliance for American Manufacturing.

When adjusted for inflation, the trade deficit increased to 68.4 billion US dollars from 66.5 billion US dollars 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.

US stocks rose in volatile trading following the biggest one-day declines for the S&P 500 index (.SPX) and Dow Jones Industrial Average (.DJI) in more than six years. The dollar (.DXY) rose against a basket of currencies as investors sought a safe-haven from the stock market rout. Prices of US Treasuries were trading higher.

Source(s): Reuters