What’s Behind the Persistent Rising Trade Deficit?
The U.S. trade deficit in goods and services rose 12% to $566 billion in 2017, which was the biggest increase since 2008. A record $2.9 trillion in imports swamped $2.3 trillion in exports last year, according to a Commerce Department report this week.
Though solid gains were achieved in exports last year, imports were stronger in recent months, which fueled the massive and persistent trade deficit. Trade with China hit a record deficit of $375.2 billion, while the gap with Mexico rose to $71.1 billion. By comparison, the last time the U.S. turned a trade surplus was 1975.
Perplexingly, even though the U.S. dollar dropped nearly 7% last year, the trade gap still widened. That’s surprising because the currency drop gives U.S. companies a price edge against foreign markets and makes imports more expensive in the U.S. To be sure, economists predict it will take more time for a weaker dollar to become evident in the trade balance discussion.
A reasonable explanation of the trade deficit expansion is that good times spur more imports. Economists say, as a result of a strong economy and high consumer confidence, more foreign products are purchased.
Experts say trade deficits are the consequence of bigger economic forces than trade policies. Rather, they reflect a simple fact: when people spend more than is produced, imports fill the gap.
For comments, questions or concerns, please contact Dennis Kaiser
- ◦Economy
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