US Trade Gap Hits 5-Year High

The numbers are in and it looks like the US trade deficit shot up in January to reach its highest level in roughly five years, mostly on the heels of more success from mobile phones and other consumer goods that increased America’s trade gap with China. Of course, the result of this gap highlights the challenges President Donald Trump faces in terms of fulfilling his pledge to do just the opposite and reduce America’s trade deficits.

More specifically, the trade deficit increased 9.6 percent—to $48.5 billion—up from $44.3 billion in December, according to the United States Department of Commerce. This is the largest monthly gap increase since the March 2012 deficit of $50.2 billion.

Accordingly, US exports increased only slightly—by 0.6 percent, to $192.1 billion—with help from excellent auto sales. However, this was pulled down a bit by a 2.3 percent surge in imports, which has hit $240.6 billion.

These numbers are important because during the presidential campaign, Donald Trump made a pledge to vigorously attack America’s stubborn trade deficits. In fact, he has blamed these trade deficits or the loss of millions of good-paying factory jobs (that have moved overseas, obviously, for cheaper labor). To bring those jobs back to America, Trump has threatened to assign punitive tariffs on imports from not only China but also Mexico and any other nation he has accused of unfair trade practices. Of course, economists are concerned that Trump’s threatening lip could just incite an all out war among foreign trading nations, who will retaliate by imposing their own tariffs on American goods.

In a statement, US Secretary of Commerce, Wilbur Ross says that there is still a lot of work to do in regards to trade agreements and enforcement. He says, “President Trump has made free and fair trade a central part of his agenda, and correcting this imbalance is an important step in achieving that goal.”

At the same time, Capital Economics US economist Andrew Hunter notes that this big jump in the deficit, in January, could very well be a sign that trade will continue to drag overall growth down, at least in the first quarter. However, he rebuts, the impact will be less than it was than in the last quarter, when trade growth fell to only 1.7 percent.

He shares, optimistically, “With the headwind from the dollar’s prior appreciation having eased and global growth picking up quite sharply, the outlook for exports is better now than it has been in some time.”

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