Trade Deficit Soars: We Hit a 10-Year High In 2018

Trade deficit soars 19% in December, U.S. goods gap highest ever


The nation’s trade deficit shot to a 10-year high in 2018 despite frenzied efforts by the Trump White House to reduce the gap, reflecting both the strength of the U.S. economy and the thorny nature of a problem that’s bedeviled presidents for decades.

The deficit jumped nearly 19% in December to a seasonally adjusted $59.8 billion, according to a government report that was delayed by the government shutdown earlier in the year. That’s the single biggest monthly gap since October 2008.

The increase pushed the total for the full year to $621 billion, the highest mark since the U.S. posted a $709 billion deficit in 2008 during the middle of the last recession.

What’s more, the trade gap in goods sailed to an all-time high of $891.3 billion, reflecting record deficits with China, Mexico and Europe.

The trade deficit with China shows no sign of shrinking. The U.S. ran a $419 billion deficit in goods with China in 2018, up almost 12% from a year earlier, based on U.S. Census figures. China accounted for almost half of the U.S. deficit in goods in 2018.

The administration slapped tariffs on hundreds of billions of dollars in Chinese goods last year after accusing the country of unfair practices, but the sanctions have done nothing to alter a lopsided trade relationship.

The Chinese economy has suffered because of strained trade ties, but so has the United States. Soybean and other farmers, for instance, were harmed by retaliatory tariffs, and a recent study shows that American consumers paid higher prices for goods such as appliances.

The two countries are trying to negotiate a broad deal to end the standoff and an agreement of sorts is said to be near, but it’s unlikely to resolve all the outstanding issues.

December details

In December, the U.S. imported more computers and accessories, appliances, cell phones and other household goods in the runup to the holiday season.

Imports rose 2.1% to $264.9 billion in the month, bringing the 2018 total to a record $3.1 trillion.

Exports of commercial aircraft, crude oil and industrial supplies declined in December, but the U.S. still exported a record $2.5 trillion in goods and services in 2018.

The record trade gap in goods was partly offset by chronic U.S. surpluses in services such as travel, tourism and financial advice.

Chronic problem

The U.S. has repeatedly run large deficits since early in the Reagan presidency in the 1980s, reflecting broad changes in the U.S. economy, a shift in manufacturing to cheaper foreign countries and the economic rise of China and other developing nations such as Mexico. Deficits subtract from gross domestic product, the official scorecard for the U.S. economy.

A trade deficit is not always a sign of economic weakness or disadvantage, however. The gap rose again in 2018 in no small part due to the strength of the U.S. economy compared to most other countries.

Rising wages and the lowest unemployment rate in decades enabled Americans to buy more goods and services, including imports. A strong dollar DXY, -0.06%  also made foreign goods cheaper for Americans to buy.

On the flip side, the strong dollar made U.S. goods more expensive while slower economic growth in Europe, Japan and China curbed demand for American-made products.

The White House may have unwittingly contributed to higher deficits.

For one thing, the Trump tax cuts supercharged consumer spending in 2018, leading Americans to spend even more on imports. And the tariffs imposed by the White House may have contributed to higher deficits by spurring American companies to speed up purchases of foreign goods before tariffs took effect.

The bigger trade gap may prevented the economy from reaching 3% GDP in 2018 for the first time since 2005, a goal of the Trump administration that would have provided the president with a symbolic victory. GDP rose 2.9% last year.

In any case, even if China agrees to U.S. trade demands, the trade deficit is unlikely to fall much anytime soon, if at all. Many goods imported into the U.S. are no longer manufactured domestically.


Before the trade report the Dow Jones Industrial Average DJIA, -0.01% and S&P 500 SPX, -0.16% were set to open slightly lower on Wednesday.

The 10-year Treasury yield TMUBMUSD10Y, -0.37% fell a few basis points to 2.71%. Many loans such as mortgages and auto loans are tied to changes in the 10-year note.

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