U.S. Trade Gap in December Was Widest in Nine Years -- 2nd Update
By Jacob M. Schlesinger and Harriet Torry
WASHINGTON -- The U.S. trade deficit grew 12% last year to $566 billion, its widest mark since 2008 and a challenge for President Donald Trump, who has pledged to rebalance the nation's books with the rest of the world.
The goods deficit with China alone rose 8% during Mr. Trump's first year in office to a record $375.2 billion, or more than half the total global gap between American imports and exports, the Commerce Department said Tuesday.
Those numbers are likely to figure prominently in a White House campaign to ramp up pressure on Beijing's trading practices. Administration officials are weighing wide-ranging import and investment limits on Chinese companies, in retaliation for allegedly unfair trade policies. Decisions are expected soon, but no timetable has yet been set.
About one-third of the trade deficit with China last year was in what the Commerce Department labels "advanced technology products," like consumer electronics, computers and cellphones. The Trump administration alleges the Chinese government improperly pressures U.S. technology companies to turn over valuable intellectual property to gain access to the world's second-largest economy.
Trump officials say they have a plan in place to fulfill the president's pledge to shrink the trade deficit, but emphasize patience. "Our aggregate trade deficit has been large and persistent for many years and will take time to fix," a White House spokeswoman said.
Some economists say administration policies might actually make the deficit larger. Trade deficits are driven by broad national saving trends. Consumers are spending more in a faster growing economy, saving less aggressively and consuming more products made overseas. That is potentially accentuated by last year's tax law, which is projected to add $1 trillion or more to the budget deficit over a decade, depleting national saving and increasing consumption of foreign goods.
"These are identities that you can't escape," said Gregory Daco, an economist at Oxford Economics USA, an economic forecasting firm. "If you want to cut the trade deficit, that means less spending and more savings. The tax cut supports greater spending, and the result will be more imports."
Moreover, administration talk of tougher trade action -- without immediate follow-through -- appears to have sparked a short-term surge last year in imports of products like steel and aluminum ahead of an anticipated crackdown.
On a recent earnings call, Edward Lehner, chief executive of Ryerson Holding Corp., a processor and distributor of metals, blamed "surprisingly high levels of carbon, aluminum, and stainless imports" for squeezing profit margins last year, a trend, he added, that "was further spurred by panic.... metal buying in advance of an anticipated trade ruling that never materialized."
Repeated threats to terminate the North American Free Trade Agreement also may have contributed to the 10% increase in the 2017 trade deficit with Mexico to its highest level 2007 -- both by weakening the peso, making Mexican goods cheaper, and by prompting Mexicans to diversify away from U.S. suppliers of some agricultural products.
Still, for all the talk of Mr. Trump's election heralding a U.S. turn away from globalization, his first year in office marked a robust expansion of U.S. trade with the rest of the world, as most major economies globally enjoyed a rare sweet spot of near-simultaneous expansion.
Exports rose a robust 5.5% last year, the fastest pace in six years, and hit their highest monthly level ever in December, lifted by chemicals and capital goods, like civilian aircraft.
Overseas sales accounted for 20% of sales last year for Gradall Industries Inc., an Ohio-based maker of heavy machinery -- up from 15% the previous year, driven in large part by exports to India and China.
"Markets are up around the world," said company president Mike Haberman.
Even with China, there were bright spots for U.S. exporters in 2017. After the Trump administration successfully prodded Beijing to reopen its beef market over the summer, "we were the first company to ship beef to China after the resumption of trade, and we have a huge market share already in that market," Tyson Foods Inc. Chief Executive Thomas P. Hayes told an earnings call late last year. "We are expecting strong export trade continuing."
Imports into the U.S. grew even faster in 2017, rising by 6.7%, also the biggest jump since 2011 to a record level, supported by strong growth in American consumer spending.
Deficits with both Nafta partners -- Mexico and Canada -- rose through the year, stoked in large part by imports of motor vehicles and parts from both countries. One of Mr. Trump's chief goals in renegotiating Nafta is to force more auto production back to the U.S. Overall, the auto industry accounted for one-third of the total global trade imbalance for the U.S.
Economists said another key main factor behind the expanding 2017 deficit was the lingering impact of a major market shift preceding Mr. Trump's election -- the sharp rise in the value of the dollar in 2014 and 2015. Big, persistent currency moves can affect trade flows for several years, and the dollar's weakening in 2017 was too little, too late, to affect trade patterns last year. The dollar dropped nearly 8% in 2017 in the WSJ Dollar Index, which measures the U.S. currency against 16 others, but remained more than 16% above 2013 levels.
Andrew Tangel contributed to this article.
Write to Jacob M. Schlesinger at firstname.lastname@example.org and Harriet Torry at email@example.com
(END) Dow Jones Newswires
February 06, 2018 12:33 ET (17:33 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.