Trump’s U.S. goods deficit, has just grown bigger
Deficit grows 12 per cent driven mainly by China, India and Mexico
WASHINGTON — The biggest complaint of the Trump administration as it seeks to renegotiate trade arrangements has just gotten bigger: the U.S. trade deficit ballooned to its highest level in a decade in Donald Trump’s first year in office.
Figures released Tuesday show the U.S. deficit in goods and services swelled 12 per cent last year, driven mainly by imbalances with China, then India and to a lesser extent Mexico and Germany, with goods trade with Canada representing a comparably small fraction.
Trump’s team keeps citing such imbalances as the reason to renegotiate NAFTA, threaten the U.S.-Korea agreement, cancel American participation in the Trans-Pacific Partnership and increase trade actions against China.
One example came at the closing news conference of the last NAFTA round in Montreal, where U.S. trade czar Robert Lighthizer focused on the specific issue of the merchandise trade imbalance as the reason for renegotiating.
“Is it not fair for us to wonder whether this imbalance could in part be caused by the rules of NAFTA? Would Canada not ask this same question if the situation were reversed?” Lighthizer said, his Canadian counterpart Chrystia Freeland alongside, staring straight ahead.
“So we need to modernize and we need to rebalance.”
His critics say Lighthizer is off-base on multiple fronts.
A survey of leading economists from the University of Chicago finds almost no support for the notion that politicians can help citizens with policies that attack trade imbalances. Explaining their answers, the economists said a variety of factors can cause deficits.
The Canadian government disputes there even is a deficit with the U.S. It says the goods imbalance is largely attributable to the U.S. need to import oil. And when trade in services is factored in, it says, the U.S. balance fares just fine.
The new U.S. Census figures show the deficit in goods with Canada grew to more than $17 billion last year from $11 billion the previous year. Also Tuesday, new Canadian figures showed Canada’s own global trade deficit surged in late 2017 with an increase in imports.
In overall goods trade, the new figures show the U.S. with an $800-billion global deficit in trade excluding services. Canada accounts for about two per cent of that; Mexico and Germany about eight per cent, India 12 per cent and China 46 per cent.
Changing NAFTA won’t change that, said Brett House, Scotiabank’s deputy chief economist.
Rather, said House, American policy-makers have been making choices in domestic policy that are destined to make these numbers worse. As an example, he pointed to recent tax reforms, which he predicted will drive up spending, increase imports and deepen the trade deficit.
“Neither the bilateral balances nor the overall deficit are a function of trade policy,” House said.
“Instead, (the deficit numbers) reflect U.S. consumption running persistently ahead of U.S. savings. With the recent fiscal reforms in the U.S. and wider federal budget deficits in the offing, that U.S. consumption-savings imbalance is set to get worse. Combined with a relatively stillstrong U.S. dollar, U.S. trade deficits are set to keep widening because of domestic U.S. economic choices.”