US Trade Deficit Jumps To Nine-Year High
As President Trump continues to flail about over trade and tariffs, making the trade deficit a key policy focus, the US trade deficit widened in January with the biggest rise in shortfall in nine years had occurred on his watch.
Data for the US trade account for January showed a 9% rise in the trade deficit to $US56.6 billion. That’s the highest level since October 2008, the month after Lehman Brothers collapsed, triggering the GFC and deepest recession in the US in 70 years. Weak exports and rising imports (fuelled by higher prices for oil and other commodities were in part responsible along with a weaker dollar.
The US Bureau of Economic Analysis figures were 16% above the deficit figure for January 2017, When President Trump took office.
Exports fell 1.3% to $US209 billion, reflecting a big drop in the volatile category of commercial aircraft shipments (Boeing jetliners). Exports of oil, chemicals and other industrial supplies also fell. Imports were unchanged at $257.5 billion. The biggest increase in petroleum imports in three years was offset by falls in shipments of cellphones, computer chips and other consumer-related goods.
Consumer related imports typically fall after the Christmas holiday-shopping season. US steel imports and exports, the trigger for a Trump tariff (25%) trade spat between the White House and the rest of the world, were little changed in the month.
But there was some good news as exports of consumer goods (which will be targeted by the EU if the steel and aluminium tariffs are imposed) rose to a record high and those of motor vehicles, parts and engines reached the highest level since mid 2014.
For all his tough talk, it has been President Trump, who has presided over a surge in the trade deficit which hit $US566 billion in 2017, a 9 year high.
It is a figure he hasn’t claimed for his own, unlike the way he continually claimed the surge on Wall Street as the result of his Presidency and policies (the lure of tax cuts) until the market hit the wall in early February and slumped. It faces a similar test tonight with the release of the February jobs and wages data.
The strong economy that Trump inherited from President Obama and has claimed as his own (until the slide in 4th quarter growth to 2.5% (annual) from 3.2% in the September quarter) is why America is running persistent trade deficits.
The US economic recovery is now 9 years old, ageing, but still alive and that has seen demand for a wide range of products and services that America can’t supply, imported. On top of that the surge in oil prices since mid 2017 has played a part in lifting the value of imports and the size of the deficit, even though American oil exports have risen.
The politically sensitive goods trade deficit with China surged nearly 17% to $US36.0 billion, the highest since September 2015. The deficit with Canada jumped 65% to a three-year high of $US3.6 billion. China and Canada are America’s top trading partners. They are also in the gun in this emerging trade war.
The President’s ignorance on this issue is exposed by the fact that on the more comprehensive balance of payments basis, the US deficit is offset by the huge capital inflows in investment, loans, dividends from its offshore assets and the fact that the US dollar is the global reserve currency. That in turn generates tens of billions of dollars of free income for the country and its banks and other groups every year. China, Japan, (even Australia) the UK, Europe are all helping finance the US trade and budget deficits by buying billions of dollars in US government bonds a year. America depends on some of the countries it is now antagonising for that financial support.
If this was to slow or reverse, the US dollar would slide, US bond yields would rise sharply and the economy would slow dramatically and unemployment would start reversing.That’s why the trade deficit is irrelevant as a measure of the real health of the American economy (if anything it is a measure of how strong it is).
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.