Coverage: Trade deficit hits nine-year high

The U.S. trade deficit increased to a more than nine-year high in January, with the shortfall with China widening sharply, suggesting that President Donald Trump’s “America First” trade policies aimed at eradicating the deficit will likely fail.

Lucia Mutikani of Reuters had the news:

The trade gap continues to widen a year into the Trump presidency. Trump, who claims that the United States is being taken advantage of by its trading partners, has imposed tariffs on imports of some goods and threatened punitive measures on others to shield domestic industries from competition. The protectionist measures have sparked fears of a trade war.

“Trump’s economics team is trying to turn back the clock on trade, but we doubt they will succeed as they are interfering with the business decisions made by thousands of American companies over the years,” said Chris Rupkey, chief economist at MUFG in New York. “This is a trade war with ourselves.”

The United States has been running trade deficits for decades, with the trend worsening over the last 30 years as companies shifted manufacturing to countries like China.

The Commerce Department said on Wednesday the trade deficit jumped 5.0 percent to $56.6 billion. That was the highest level since October 2008 and exceeded economists’ expectations of an increase to $55.1 billion. Part of the rise in the trade gap in January reflected higher commodity prices.

Doug Palmer of Politico reported that the trade deficit is not necessarily bad:

For example, America’s monthly trade gap plummeted from $59.5 billion in October 2008 to $44.1 billion the following month as the early days of the Great Recession took hold. The monthly deficit continued declining and bottomed out at $26.6 billion in June 2009, before it gradually started rising again as the economy improved.

The U.S. last year racked up an annual trade deficit in goods and services with all international trading partners of $568.4 billion, a 12.6 percent jump from the prior year, according to updated numbers the Commerce Department released on Wednesday. That was the widest the annual gap has been since 2008.

The latest monthly report comes as Trump is promising to impose tariffs on steel and aluminum imports from around the world to protect national security. Many countries believe the coming tariffs, which the administration expects to finalize this week or next, are a disguised effort to impose protectionist duties, and key U.S. allies like the EU and Canada are threatening to retaliate.

Sho Chandra of Bloomberg News reported that exports fell the most by more than a year:

Exports fell 1.3 percent from December, the most in more than a year, while imports were little changed.

From a current economic standpoint, the widening deficit indicates trade may again be a drag on the pace of first-quarter expansion. The gap has increased in recent months as steady household spending and business investment boost imports. Improving global growth and a weaker dollar have been supporting overseas sales of American-made goods, though not enough to outpace inbound shipments.

From a political standpoint, however, the gap has formed a statistical backdrop first to Trump’s 2016 election campaign and now to his planned tariffs on steel and aluminum. The president has opened multiple fronts in trade battles, from targeting strategic rival China to angering allies like Canada and EU with threats to erect fresh barriers.

The European Union is preparing retaliatory levies on products including motorcycles, jeans and bourbon whiskey if Trump follows through on his threat. A full-blown trade war would risk blunting the effects of the president’s policies such as tax cuts and reduced regulation, aimed at boosting U.S. growth.