Rising trade deficit no cause for worry

Arturo Kim
March 9, 2019

A surfeit in resources trade was not able to prohibit the total deficit for 2018 from escalating almost 19 percent in December to a decade-long high of $621bn.

But the deficit has been a long-standing bugaboo for Trump.

The President has successfully negotiated new agreements with South Korea, North American neighbours Canada and Mexico, and appears close to a deal with China. "It has become a number that fundamentally matters because it is a statistic to which Trump is accountable".

However, the central bank said the manufacturing sector cited concerns about the trade tensions, including "weakening global demand, higher costs due to tariffs, and ongoing trade policy uncertainty". In Trump's zero-sum view of trade, a deficit indicates that America is somehow losing or being taken advantage of-you know, in the same way that a grocery store is taking advantage of you by selling you food.

Mr Trump hit roughly half of Chinese imports with taxes past year, a move created to kick-start trade negotiations with the goal of increasing exports to that country and stopping the forced turnover of USA technology and theft of intellectual property.

"Is the juice going to be worth the squeeze?"

On the China front, reports continue to be published that Trump is pushing for a deal, in order to be able to announce victory and boost his 2020 campaign for the United States presidency.

The White House maintains that trade imbalances translate directly into thousands of job losses but while the tariffs protections help some companies, many others have struggled with higher prices and held off on investments amid the trade war.

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Trump has used tariffs or import taxes more aggressively than any American president since the 1930s.

"A budget deficit is the public sector adding additional borrowing to the USA economy, making the gap between our spending and our earning even larger", Clausing said.

A study released last week by researchers at Princeton and Columbia universities and an official at the Federal Reserve Bank of NY estimated that, by November 2018, Trump tariffs knocked $1.4 billion off of real income across the country in just that month alone. In this case, it rose from $17.9 billion to $169.3 billion in 2018. A few months back, he imposed a 10 percent tariff on an additional $200 billion and said that number would rise to 25 percent on January 1st if China did not agree to US trade demands. Computer imports also increased 0.7 billion US dollars.

Though the Chinese tariffs have already had an impact, they are not the only trade issue that could have an impact on American consumers.

Reducing the gap is a key plank of Mr. Trump's policies.

In brief, what's going on with the USA trade deficit is mainly a result of macroeconomics, not trade policy.

Today, the USA economy is healthy, with economic growth relatively robust. And that, Cohn explained to the president, is a good thing, as folks buying less expensive goods with a stronger dollar have more money to spend on services, which make up more than 80 percent of our gross domestic product.

There are a few takeaways from this news, including that trade was probably a bigger drag on growth last year than previously forecast. They and other Democrats should stop mimicking Trump's economic silliness, pledge to end trade wars, vow to open up markets and then outline a generous and comprehensive package to address workers and regions adversely impacted by trade.

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