As Trump wages trade war, U.S. goods deficit hits record high in 2018

The U.S. goods trade deficit surged to a record high in 2018 as strong domestic demand fueled by lower taxes pulled in imports, despite the Trump administration’s “America First” policies, including tariffs, aimed at shrinking the trade gap.

President Donald Trump is pursuing a protectionist trade agenda to shield U.S. manufacturing from what he says is unfair foreign competition. Trump, who has dubbed himself “the tariff man,” pledged on both the campaign trail and as president to reduce the deficit by shutting out more unfairly traded imports and renegotiating free trade agreements.

The Commerce Department said on Wednesday that a 12.4 percent jump in the goods deficit in December had contributed to the record $891.3 billion goods trade shortfall last year. The overall trade deficit surged 12.5 percent to $621.0 billion in 2018, the largest since 2008.

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“The trade deficit exploded last year despite the Trump administration efforts to make America great again, and the trend is unlikely to get any better in 2019,” said Chris Rupkeychief economist at MUFG in New York.

The White House has argued that reducing the trade deficit would boost annual economic growth to its goal of 3 percent on a sustainable basis. The government also sought to stimulate the economy with a $1.5 trillion tax cut package, which jolted both consumer and business spending, helping to lift imported goods to a record $2.6 trillion in 2018.

The United States last year imposed tariffs on $250 billion worth of goods imported from China, with Beijing hitting back with duties on $110 billion worth of American products, including soybeans and other commodities. Trump has delayed tariffs on $200 billion worth of Chinese imports as negotiations to resolve the eight-month trade war continue.

Businesses likely stocked up on imports in anticipation of further duties on Chinese goods, which ironically contributed to the deterioration in the trade deficit last year.

The goods trade deficit with China increased 11.6 percent to an all-time high of $419.2 billion in 2018. The United States, which also slapped duties on imported steel, aluminum, solar panels and washing machines, had record imports from 60 countries in 2018, led by China, Mexico and Germany.

“Perhaps Donald Trump will now discover that tweets and bluster alone won’t dramatically shrink the trade deficit,” said Scott Paul, president of the Alliance for American Manufacturing in Washington. “The administration’s fiscal policies have helped to boost the trade deficit.”

While goods exports hit a record $1.7 trillion in 2018, they declined in the last three months of the year, weighed by the U.S.-China trade dispute, slowing global demand and a strong dollar, which is making American-made goods less competitive on the international market.

The dollar was little changed against a basket of currencies, while U.S. Treasury prices rose. Stocks on Wall Street were trading lower as investors awaited fresh developments on the trade negotiations.