The US trade deficit increased to its highest level for over nine years last month. Imports from China increased by 2.9%, while the overall deficit increased by 5%. In dollar terms, January’s trade gap was $56.6 billion. This is the greatest trade deficit in the US since October, 2008, and up from $53.1 billion in December 2017.
US Trade Deficit With China and Canada
The politically sensitive difference in trade between the US and China increased significantly by 16.7% to a staggering $36 billion. While this was the highest it has been since September, 2015. While imports from China remained static at $257.5 billion in January, the month saw exports to China collapse by 28.1%. Exports in general from the US fell 1.3%. There was also a three year high in the deficit with Canada.
This apart, Donald Trump’s protectionist policy, particularly the imposition of 25% traffic on European steel and 10% on aluminum, may well lead to reduced economic growth. Particularly if the EU responds in kind on imports from the US. The last thing the US needs is a trade war with the EU – one which it is unlikely to win.
Imports and US Consumer Demand
Because of the high employment levels in the US, consumer demand remains high. Imports are the only way to meet that demand. US manufacturing cannot increase by the amount needed to meet it with domestic production. Demand has also increased due to the recent reduction in individual and corporate taxes. People and businesses have more money to spend!
America First and US Protectionism
The ‘America First’ policies of Donald Trump are likely to put even more pressure on the US economy. They may also have a negative effect on NAFTA talks between the US, Canada, and Mexico. Trump is seeking a renegotiation of the NAFTA trade agreement to make its terms more favorable to the US. American protectionism may unleash a backlash from NAFTA and the EU that may harm the US economy even further.