The U.S. trade deficit widened to the biggest monthly and annual levels since the last recession, underscoring the inherent friction in President Donald Trump's goal of narrowing the gap while enjoying faster economic growth.
The fiscal stimulus comes when the economy is nearly at full employment, which means the resulting increase in demand will likely be satisfied with imports. According to the Commerce Department, the foreign-trade gap in goods and services increased 5.3% from the prior month to a seasonally adjusted $53.1 billion in December, the highest level since October 2008. Economists polled by Reuters had forecast the trade gap widening to $US52.0 billion in December.
Despite Mr. Trump's frequent promises to reduce the trade deficit, many economists believe that his trade policies will be largely powerless to reverse the trend. Part of the rise in the trade gap in December reflected commodity price increases. "The first-year Trump jump in the US trade deficit adds urgency to the administration actually securing a NAFTA replacement deal that ends NAFTA's job outsourcing incentives and implementing a new China trade policy". "However, after rounding, our Q4 GDP tracking estimate was left unchanged at 2.6%", added Barclays.
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 favourable to Washington.
In 2017, "the goods deficit with China hit a record $375.2 billion" and the deficit with Mexico swelled to $71.1 billion, up from $55.6 in 2016. And he really wants to impose trade sanctions on China for the theft of USA intellectual property. "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 increase in the trade deficit is highly sensitive at present given the Trump administration´s current crusade to simultaneously boost economic growth but improve the balance of trade.
Throughout his campaign and time in office, Trump has argued that he would wipe out deficits created by America's signing of bad trade deals, which he says have hurt workers and businesses to the benefit of the nation's top trading partners.
Analysts, however, said the broadening trade gap could cause downward revisions to GDP in the final quarter of 2017, taking the U.S. even further from Trump's goal of three-percent annual growth.