Published: Sat, March 09, 2019
Markets | By Erika Turner

Trump Tax War Propels US Trade Deficit To 10 Year High

Trump Tax War Propels US Trade Deficit To 10 Year High

Meanwhile, the overall trade deficit with the world, with services factored in, jumped 12.5 percent to $621 billion as both imports and exports rose to their highest levels ever, according to the report.

Economists pointed to Trump's $1.5 trillion tax cut on corporations and the rich as a key driver of the trade deficit, That led to increased purchases on imports while a rising dollar limited exports, the Post reported.

That has been exacerbated by the tariffs, which have not only been blunted by the currency relativities but have been largely absorbed by U.S. companies or passed on to U.S. consumers in the form of higher prices.

"They're moving along well and we'll see what happens".

And a survey led by the Federal Reserve Bank of Atlanta found that the tariffs had caused US companies to cut their spending on large equipment by 1.2 percent, or $32.5 billion, last year.

It has been evident for months that the President was failing to shrink a trade gap that he calls "unsustainable" and that he says represents a massive transfer of wealth from Americans to foreigners. "It's not an accident". On the other hand, imports again rose as American consumers continued to patronize foreign-made goods, especially cheaper products from China. Derek Scissors, resident scholar at American Enterprise Institute calculates the tax cuts could boost the trade deficit by $200 billion.

President Trump doesn't understand that the trade deficit is not an accounts payable that the United States must settle by writing a big check.

In the first 11 months of 2018, the U.S. trade deficit in goods and services with the world increased $52 billion, or about 10%, from the same period in 2017.

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Imports of goods ($2.6-trillion) and services ($557.9bn) reached new all-time highs, the report showed.

In 2016, it was $502 billion.

Other studies show tariffs costing USA consumers tens of billions of dollars in higher prices, not to mention the $8 billion in tax dollars sent to prop up farmers hard hit by Chinese retaliation. They also point to his renegotiation of Nafta as something that will help reduce the USA trade deficit in the long run.

He's pushing for USA negotiators to close a trade deal with China soon, concerned that he needs a big win on the global stage - and the stock-market bump that would come with it - in advance of his re-election campaign. So far, Washington has imposed tariffs on almost $250 billion of Chinese imports.

New data shows that the trade gap between the United States and China widened previous year by $43.6bn to $419.2bn as exports of American products and services fell, but imports from China rose.

Simultaneously, the Federal Reserve raised interest rates four times a year ago to offset fears of an overheating economy, thereby increasing the strength of the dollar and encouraging purchase of relatively low-cost foreign goods. You start a trade war, you should expect your exports to be hit.

But advocates of a stronger United States currency policy argue that Trump himself carries plenty of blame. There is a strong likelihood Trump might walk away from the ongoing trade talks with China.

The US has to print dollars to fund its deficits and, with the US dollar the global currency for foreign exchange transactions and the dominant currency for global central bank reserves, the rest of the world needs to exchange goods and services for US dollars. To his mind that means the U.S.'s trade balance is worse than even the official data reflects.

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