The U.S. currently holds the highest trade deficit seen in a decade, despite political efforts on the part of Washington to achieve the opposite effect. Now that this information has been revealed, it may be time for a new analysis of the current American trade situation.
The U.S. trade deficit reached a record high sum last year, and it doesn’t seem that there will be any immediate change in the opposite direction. The U.S. government reports that the trade gap for goods and services sold reached $621 billion, the highest figure recorded since 2008. The specific trade deficits with Mexico and China have also jumped to record-breaking heights.
This news will likely have some form of economic repercussions, as the trade deficit comes at a time when the U.S. dollar is still strong relative to other currencies, feeding imports while making it harder for foreign businesses to import from the U.S. Political repercussions can be expected as well. President Donald Trump has stated that deficit-funded tax cuts would stimulate American economic growth. The tax cuts appear to have stimulated consumer and corporate spending to an extent, but the uptick in consumer spending also includes foreign imports, which are cheaper given the current currency imbalance. The American economic situation is further aggravated by global unwillingness to spend too much in U.S. dollars while the currency is so strong.
Going forward, both currency conversion rates and the U.S.-China trade war are going to be deciding factors in future changes to the U.S. trade balance. The tariffs imposed on Chinese steel and other products by the White House have also likely contributed to the trade imbalance. For the financial year of 2018, it would appear that American companies sped up their purchases of imports from China in order to avoid future tariffs.
