Please enable JavaScript to view the comments powered by Disqus.

Economic Forecasts

U.S. Trade Deficit at Nine-Year High and Rising

Kiplinger's latest forecast on the direction of the trade deficit.

iStockphoto

GDP 3.0% pace in '18, up from 2.3% in '17 More »
Jobs Unemployment rate down to 3.8% by end '18 More »
Interest rates 10-year T-notes at 3.3% by end '18 More »
Inflation 2.6% in '18, up from 2.1% in '17 More »
Business spending Up 7% in '18, boosted by expanded tax breaks More »
Energy Crude trading from $55 to $60 per barrel in April More »
Housing Existing-home sales up 1.6%, new-home sales up 9.8% in '18 More »
Retail sales Growing 4.6% in '18 (excluding gas) More »
Trade deficit Widening 5%-6% in '18 More »

The shortfall in U.S. trade with the rest of the world hit a nine-year peak in 2017 and will keep climbing this year. Despite harsh rhetoric from the Trump administration about unfair trade tactics and threats to renegotiate or pull out of trade pacts, part of the sharp rise in imports stems directly from administration policies that encourage consumer spending, such as the recent tax cuts. Consumer spending is up; savings rates are down. And reduced tax revenues over the next decade will add $1 trillion or more to the deficit, which will force the government to borrow more. With these factors, expect Americans to buy even more imported goods. Look for a 5% to 6% widening in the trade gap this year, after the bigger-than-anticipated 12.1% increase in 2017 pushed the deficit to $566 billion, the highest since 2008.

Import growth accelerated in the second half of 2017 and was up 6.7% for the full year, handily outstripping a 5.5% pickup in exports. A variety of factors, including a cheaper U.S. dollar, are giving imports an edge. The extra spending on foreign-made goods is boosting factories in competitor countries such as China, Japan and Mexico, causing headaches for administration officials.

See Also: Good Reasons to Invest in Foreign Stocks Right Now

The U.S. trade deficits with North American Free Trade Agreement partners Mexico and Canada grew during 2017. Imported autos and auto parts were the main drivers. As NAFTA is being renegotiated, President Trump periodically threatens to pull out of it entirely unless Mexico and Canada give the United States better terms. However, the 24-year-old pact enjoys wide support among American industries and states that benefit from it.

Global trade is on an upswing, particularly now that every major region is enjoying simultaneous expansion. That relatively rare occurrence is giving American exporters a chance to win new business at a time when U.S. companies have the extra benefit of a weaker U.S. dollar to help them compete in foreign markets. The greenback’s value shot up relative to other major trading currencies in 2014 and 2015, hindering exports, but the dollar shed about 8% of its value in 2017. The U.S. is also sucking in imports from around the world, but over the last year, those included more foreign-made machinery — an encouraging sign that American companies are making capital investments so they can expand production.

via e-mail: Kiplinger Alerts — Intelligence for your business success

Sources: Department of Commerce, Trade Data