Despite President Trump’s insistence that he could negotiate his way to a lower trade deficit, the gap hit an all-time high of $891.2 billion in 2018.
The monthly trade gap widened from $50.3 billion in November to $59.8 billion in December, which was a bigger gap than what most economists had initially predicted. Imports rose by $5.5 billion from November, and exports fell by $3.9 billion.
Trump has used the trade deficit as a ruler for measuring how well the economy is doing on the whole, despite the fact that many economists would argue that it speaks to Americans’ rising buying power. “It doesn’t signal that the economy is weakening,” said Ryan Sweet, and economist with Moody’s Analytics, Inc.
The increase in imports is partially due to Trump’s efforts towards economic stimulus: as tax cuts, for example, leave Americans with more money in their wallets, they spend them on imported goods like clothes and electronics.
At the same time, Trump’s unpredictable approach to trade negotiations has had companies stockpiling goods for fear that they might see new tariffs in the near future. The deficit is likely to continue to reflect that practice through the early months of 2019.
Stephen L. Stanley of Amherst Pierpont Securities, LLC. said the extra imports are showing up in companies’ inventories. “All we’re really doing is moving things around on when they come into the country,” he said. He said he does not expect the rise to affect the GDP because the United States is importing the same amount of goods in the long-term.
“We’ve already been seeing the reactions to people’s fears,” said Richard Moody, an economist with Regions Financial Corporation. He said the turbulence of President Donald Trump’s trade war with China has left many companies preparing for the worst. “A lot will depend on how these trade disputes get resolved.”
The United States also saw a decline in exports. Other countries have seen their economies slow, which has reduced the demand for American exports.
Retaliatory tariffs are not helping, either. President Trump’s trade war has ultimately led to higher tariffs on American products in China and in turn, China is buying less from the U.S. The Trump Administration delayed imposing higher tariffs on China, though negotiations are ongoing. Still, the announcement of the delay came too late for American companies who were preparing for the possibility of even more new tariffs to change orders.
At the same time, Sweet said he was skeptical about how long that growth would continue. “We’re putting the economy on a sugar high,” he said referring to the Trump Administration’s moves to stimulate short-term growth, like tax cuts. The United States’ demand for imports could decrease if the economy were to slow down.
Since his 2016 presidential campaign, Trump has promised to narrow the trade gap while simultaneously stimulating the economy. Economists had a “told you so” moment this past week when the new numbers proved Trump had not defied economic theory by making both happen.
The new figures also do not give a clear answer of what the future holds. “It might get a little smaller. It might get a little bigger. It’s not going away anytime soon,” said Moody. As Trump’s trade talks with China continue to be unpredictable, companies will continue to plan for the worst.
Sweet said that China might buy more goods and services from the United States, but that is not likely to happen this year. “All the deals have been more symbolic than substantive.”