The US trade deficit surged to a 10-year high in 2018, with the politically sensitive shortfall with China hitting a record peak, despite the Trump administration slapping tariffs on a range of imported goods in an effort to shrink the gap.
The Commerce Department said on Wednesday that an 18.8 per cent jump in the trade deficit in December had contributed to the $621.0 billion shortfall last year. The 2018 deficit was the largest since 2008 and followed a $552.3 billion gap in 2017.
The trade deficit has deteriorated despite the White House’s protectionist trade policy, which President Donald Trump said is needed to shield US manufacturers from what he says is unfair foreign competition.
The United States last year imposed tariffs on $250 billion worth of goods imported from China, with Beijing hitting back with duties on $110 billion worth of American products, including soybeans and other commodities. Mr Trump has delayed tariffs on $200 billion worth of Chinese imports as negotiations to resolve the eight-month trade war continue.
The United States has also slapped duties on imported steel, aluminum, solar panels and washing machines. The goods trade deficit with China increased 11.6 per cent to an all-time high of $419.2 billion in 2018. The United States had record imports from 60 countries in 2018, led by China, Mexico and Germany. Imports of good hit a record $2.6 trillion last year.
The December trade deficit of $59.8 billion was the largest since October 2008 and overshot economists’ expectations for a $57.9 billion shortfall, as exports fell for a third straight month and imports rebounded.
The release of the December report was delayed by a 35-day partial shutdown of the government that ended on January 25.
When adjusted for inflation, the goods trade deficit surged $10 billion to a record $91.6 billion in December. The jump in the so-called real goods trade deficit suggests that trade was probably a bigger drag on fourth-quarter gross domestic product than initially estimated by the government.
The government reported last week that trade subtracted 0.22 percentage point from GDP growth in the fourth quarter. The economy grew at a 2.6 per cent annualised rate in the October-December quarter, slowing from the third quarter’s brisk 3.4 per cent pace.
The downbeat trade data joined weak December retail sales, construction spending, housing starts and business spending on equipment reports in setting the economy on a low growth trajectory in the first quarter.
Job growth slowing
Other data on Wednesday suggested some slowing in the labor market, though the pace of job gains remains more than enough to drive the unemployment rate down. The ADP National Employment Report showed private payrolls increased by 183,000 in February after surging 300,000 in January. Economists polled by Reuters had forecast private payrolls advancing 189,000 in February.
The ADP report, which is jointly developed with Moody’s Analytics, was published ahead of the government’s more comprehensive employment report for February scheduled for release on Friday.
The ADP report is not considered a reliable predictor of the private payrolls portion of the government’s employment report because of differences in methodology.
February’s report was, however, in line with other labor market data, including weekly applications for unemployment benefits and manufacturing and services sector surveys that have suggested some moderation in job growth following hefty gains in January.
According to a Reuters survey of economists, nonfarm payrolls likely increased by 180,000 jobs in February after jumping 304,000 in January. The unemployment rate is forecast falling to 3.9 per cent in February from 4.0 per cent in January.
The dollar was little changed against a basket of currencies, while US Treasury prices were slightly higher. US stock futures were marginally lower.
The trade deficit in December was driven by a 1.9 per cent drop in exports of goods and services to a 10-month low of $205.1 billion. Exports are weakening because of slowing global demand and a strong dollar, which is making US-made goods less competitive on the international market.
Exports of industrial supplies and materials fell by $2.1 billion, with shipments of petroleum products dropping $0.9 billion and crude oil decreasing $0.5 billion. Exports of capital goods dropped $1.7 billion, led by a $1.0 billion decline in civilian aircraft shipments.
But soybean exports, which have been targeted by China in the trade dispute, increased 41.2 per cent in December.
Imports of goods and services increased 2.1 per cent to $264.9 billion in December, likely as businesses stocked up in anticipation of further duties on Chinese imports. Consumer goods imports jumped $2.4 billion, boosted by a $0.7 billion increase in imports of household and kitchen appliances.