Despite President Trump’s efforts to rein in America’s increasingly unbalanced trade, the merchandise deficit exploded to $891.2 billion dollars, shattering records along the way. Previously, the deficit record was $838.3 billion, set in 2006, right before the housing bubble burst.
Even China, which has faced American sanctions, has enjoyed a banner year and record deficit. The merchandise trade gap with China surged to $419 billion, a record for the United States. The United States enjoys a net positive in regards to services. When services are considered, the deficit drops to $621 billion.
President Trump has railed against America’s trade deficits, arguing that the massive deficits amount to a transfer of wealth from the United States to foreign countries. In an effort to reduce the deficit, Trump slapped tariffs on solar panels, washing machines, raw materials, and also various other goods from China.
So why did the deficit widen? It’s possible that businesses and the like loaded up on imports, fearing future tariffs. However, it seems that the recent corporate tax cuts may have also encouraged the deficit to surge.
Many businesses pledged to invest in the United States if they were given a tax cut. Yet it seems that a lot of companies instead bought goods from China and elsewhere. Likewise, consumers enjoyed a strong year in 2018, but many of the goods they bought were made in China.
Reports of the surging deficit could strain negotiations between the United States and China. Trump has been pushing for more balanced trade with China and increased protections for American firms. It’s believed that negotiations are entering their final weeks.