US trade deficit widens to $504 billion
The U.S. trade deficit rose to a four-year high in 2016, due in part to a stronger dollar and weaker global economies. Despite the overall increase of 0.4 percent over the year to $502.3 billion, the trade deficit, as reported by the U.S. Census Bureau, actually decreased for the month of December by 3.2 percent to $44.3 billion. For December, exports came in 2.7 percent higher at $190.7 billion as global demand for goods such as aerospace, biotechnology and electronics soared.
U.S. President Donald Trump attributed most of the losses to failed trade policies, which he believes have cost U.S. citizens millions of jobs over the years. Keeping in line with his campaign promises, Trump has already withdrawn the United States from the Trans-Pacific Partnership, a major accomplishment by former President Barack Obama’s administration. The deal was engineered to create stronger ties between the United States and countries in the Asia-Pacific region by reducing tariffs.
Trump has also blamed China and Japan for manipulating their currencies and making U.S.-made exports more expensive for foreign buyers. “The dollar gained 4.4 percent against the currencies of the United States’ main trading partners in 2016,” a Reuters article states.
According to U.S. Census Bureau statistics, the United States has not recorded a trade surplus since 1975. Over the past couple of decades, more U.S. companies have outsourced their work to lower their operation costs. As more jobs continue to shift overseas, the United States is forced to import more, creating a larger trade gap. In addition to the cheap labor abroad, China’s rise as a global leader in international trade has also taken a toll on the U.S. trade deficit. The United States’ trade deficit with China, which is the largest among its trading partners, decreased by $20.1 billion in 2016, but still totaled $347 billion.
The deficit with Mexico, one of top importers to the United States after China, increased by more than 4 percent to $63.2 billion in 2016. Since taking office, Trump has reiterated plans to renegotiate the North American Free Trade Agreement and has already convinced some automotive executives to pull their business out of foreign countries and instead build factories on U.S. soil. However, many executives, including General Motors CEO Mary Barra, have raised concerns about how these large plants are costly and could take several years to build. It is hard to say how soon these new changes will make an impact on the economy.
Earlier this year, Mexican President Enrique Pena Nieto canceled a meeting with Trump at the White House after the two exchanged heated messages on social media. Trump’s proposal to build a wall along the United States-Mexico border with Mexico’s money has created a rift between the two nations and serious complications for their future.
“Investor attention will remain firmly on comments out of Washington, D.C., that have to do with future U.S. trade policy,” Sam Bullard, chief economist and managing director at Wells Fargo Securities, said. “Depending on what is proposed, the possible negative implications of future trade tariffs, renegotiation of NAFTA, etc., could undermine the positive benefits expected from tax policy changes and regulatory relaxation.”
In December, the United States saw a big decrease in its trade deficit with Canada and Mexico. Trump has suggested that he will create more jobs and only make deals that will benefit the country. However, there is much uncertainty about how Trump will implement import tariffs and pursue trade agreements during his term in office. Economists believe that it will take actions far greater than protectionist efforts to fix the massive trade deficits.