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US Goods Trade Deficit Increases

| March 14, 2019

The US trade deficit has been a hot topic in recent years as the US has imposed or increased tariffs on a variety of foreign sourced goods in an effort to reduce the US trade deficit. Yet the result has been the opposite of what many expected with the US trade deficits in goods increasing 12% since 2017. However, the surge in the US trade deficit may have more to do with US economic growth proving more resilient than that of its trading partners rather than the change in US trade policy.

Recent US trade policy centered around tariffs and other trade restrictions intended to reduce the amount of foreign goods purchased by US consumers. Many of our trading partners then retaliated but putting tariffs on US goods. The resulting trade restrictions led to a meaningful slowdown in  the economic  growth rate  of many of our largest trading partners causing some to speculate that the US has won the first round of the trade war.

So why has the US goods trade deficit increased? It appears that the slower economic growth rates reported by many of our trading partners has caused them to consume less, including less US goods exports. Mean-while, the US economy has fared far better and US consumers have continued to purchase foreign goods.

Even the trade deficit with China has increased despite the tariffs. During 2018 US exports to China decreased by 7.4%, partly due to Chinese retaliatory tariffs, slowing economic growth in China, and Chinese consumers boycotting US goods. Meanwhile, Chinese imports increased 6.7% as Americans continued to demand goods produced in China.