US trade deficit in 2018 at 10-year high as tax cuts boost domestic demand for imports

The trade gap reached $621bn as strong dollar and tariffs impacted exports

U.S. President Donald Trump speaks during an American Workforce Policy Advisory board meeting in the State Dining Room of the White House in Washington, D.C., U.S., on Wednesday, March 6, 2019. Senator Chuck Grassley of Iowa, one of the few Republicans with the power to request President Trump's tax returns wants to make sure that if House Democrats are successful in getting them, he wants to see them, too. Photographer: Al Drago/Bloomberg
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The US trade deficit widened in 2018 to a 10-year high of $621 billion, bucking President Donald Trump’s pledges to reduce it, as tax cuts boosted domestic demand for imports while the strong dollar and retaliatory tariffs weighed on exports.

The annual deficit in goods and services increased by $68.8bn, or 12.5 per cent, Commerce Department data showed Wednesday. The December gap jumped from the prior month to $59.8bn, also a 10-year high and wider than the median estimate of economists. The merchandise-trade deficit with China -- the principal target of Trump’s trade war -- hit a record $419.2bn in 2018.

While Mr Trump frequently cites the deficit as evidence of the failure of his predecessors’ trade policies -- even though most economists don’t dwell on the indicator -- the gap has increased by $119bn during his two years as president.

Even if he completes an accord to end the tariff war with China, substantially shrinking the deficit may prove tough as cooling global growth weighs on exports while domestic demand keeps driving shipments from abroad.For goods only, the US deficit with the world surged to a record $891.3bn in 2018 from $807.5bn the prior year. The merchandise deficits with Mexico and the European Union also hit records. Meanwhile, the surplus in services kept rising, hitting a record $270.2bn last year.

For the full year, exports rose 6.3 per cent to $2.5 trillion as shipments of goods including crude oil, petroleum products and aircraft engines increased. Imports jumped 7.5 per cent to $3.12tn on purchases of items from pharmaceuticals to computers, along with services such as travel.

For December, exports fell 1.9 per cent from the prior month, the biggest decline since early 2016, to $205.1bn, on lower shipments of civilian aircraft, petroleum products and corn. Imports rose 2.1 per cent to $264.9bn, boosted by foods, consumer goods, computers and aircraft. The goods deficit was a record.