The U.S. trade deficit jumped nearly 19 per cent in December, pushing the trade imbalance for all of 2018 to widen to a decade-long high of US$621-billion. The gap with China on goods widened to an all-time record of US$419.2-billion.
The Commerce Department figures released on Wednesday undermined a key commitment by U.S. President Donald Trump, who promised to cut the trade imbalance on the belief that it would bring back overseas factory jobs and bolster the broader U.S. economy.
But the United States’ appetite for imports appears to have increased after the tariffs that Mr. Trump imposed last year on foreign steel, aluminum and Chinese products. The greater reliance on Chinese imports likely reflects an acceleration in economic growth last year from Mr. Trump’s debt-funded tax cuts, which were designed to increase spending by consumers and businesses.
The gap between what the United States sells and what it buys from other countries rose to US$59.8-billion in December from US$50.3-billion in November, the Commerce Department said. Adjusted for inflation, December was the highest imbalance on trade goods in U.S. history.
Stephen Stanley, chief economist at Amherst Pierpont Securities, suggested that the trade gap climbed so quickly because importers were rushing to bring their goods into the United States before a planned expansion of tariffs on Chinese products on Jan. 1. But the tariff hikes have since been postponed as the administration has cited progress in trade talks with China.
While strong economic growth helped to fuel a jump in imports, a higher trade gap can also be a drag that worsens the rate of growth.
The increased trade gap along with weak home construction figures for December likely means slower economic growth during the final three months of 2018, according to Jim O’Sullivan, chief U.S. economist at High Frequency Economics.
Mr. O’Sullivan estimated that annualized growth in the October-December quarter will be revised down to 2.4 per cent from 2.6 per cent.
On an annual basis, the trade gap widened 12.5 per cent. The trade gap reached the largest total since 2008, when it was US$708.7-billion. That imbalance fell in the aftermath of that year’s financial crisis as the United States and other countries plunged into severe recessions.
December’s trade imbalance worsened because U.S. imports rose 2.1 per cent as Americans bought more household appliances, cellphones and computer products from abroad. Simultaneously, U.S. exports fell 1.9 per cent as foreign demand for civilian aircraft and oil products declined.
Mr. Trump hit roughly half of Chinese imports with taxes last year, a move designed to kick-start trade negotiations with the goal of increasing exports to that country and stopping the forced turnover of U.S. technology and theft of intellectual property.
China retaliated, and the simmering trade war roiled financial markets last year. U.S. and Chinese officials have recently signalled that they’re close to some kind of agreement, although China has only bolstered its commitment to investing in and developing its technology sector and questions about how to enforce any trade rules remain.
In addition to a record trade gap in goods with China, the imbalance reached new peaks with Mexico (US$81.5-billion) and the European Union (US$169.3-billion). The United States ran a record surplus last year with South and Central America.