Despite Trump's Promises, The Trade Deficit Is Only Getting Wider

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In June, the White House levied import taxes of 25 percent on $50 billion of Chinese imports.

The U.S. trade deficit soared to a 10-year high of $621 billion in 2018 - the largest since 2008 - clearly proving president Donald Trump's protectionist trade policies continue to backfire and are hurting the U.S. economy instead.

President Trump doesn't understand that the trade deficit is not an accounts payable that the United States must settle by writing a big check.

There are a few takeaways from this news, including that trade was probably a bigger drag on growth last year than previously forecast. The U.S.is also pushing China to open its markets in services and other sectors. It was a response to concerns about Chinese disrespect for intellectual property that Trump had raised when he first imposed import taxes on Chinese goods. Consumers have more money to spend, which means they demand more stuff, and companies have ramped up their imports to satisfy that demand. All the targeted nations filed complaints to the World Trade Organization (WTO) and introduced mirror measures.

One is that US companies have stocked up on some imported goods to beat the tariffs, which increases imports in the short run.

Trump announced in a Twitter post last month that he would delay another planned increase in tariffs on $200 billion worth of Chinese goods that was originally set for 1 March.

It's not all bad news for Mr Trump, as exports of U.S. goods did rise previous year, with records showing they totalled $148.9 billion.

His approach was to try and discourage Americans from buying goods and services from overseas by introducing tariffs on them.

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More worryingly, some analysts now warn Trump will "up the ante" to distract attention from the deteriorating trade situation.

Trump rejects conventional economic views of trade, which hold that deficits are not always a negative for the economy as they can allow cheaper goods and services to be made available to more people while promoting job creation.

Markets are struggling for direction as traders await any update on negotiations between the United States and China on a trade agreement.

"The assumption now is that trade wars will intensify, and that growth will suffer as a result". On the other hand, imports again rose as American consumers continued to patronize foreign-made goods, especially cheaper products from China. Unless these trends are offset by a rapid decline in the value of the US dollar, rapidly rising trade deficits could be devastating for USA manufacturing, likely giving rise to massive job loss on the scale experienced in the 2000-2007 period, when 3.5 million US manufacturing jobs were lost.

At the same time, Trump's trade war with China led to tit-for-tat tariffs past year.

The increased trade gap along with weak home construction figures for December likely means slower economic growth during the final three months of 2018, according to Jim O'Sullivan, chief USA economist at High Frequency Economics. Even if he completes an accord to end the tariff war with China, substantially shrinking the deficit may prove tough as cooling global growth weighs on exports while domestic demand keeps driving shipments from overseas. The U.S. loss was Brazil's gain, as that country's soybean exports jumped by $8 billion.

The news comes after Trump insisted that a trade war with China would be "good" and "easy to win." Which it did, forcing China to cease its threats of retaliation in favor of negotiating with the U.S.

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