US trade deficit jumps to more than 9-year high

The U.S. trade deficit increased to a more than nine-year high in January, with the shortfall with China widening sharply, suggesting that President Donald Trump’s “America First” trade policies are unlikely to have a material impact on the deficit.

The Commerce Department said on Wednesday the trade gap jumped 5.0 percent to $56.6 billion. That was the highest level since October 2008 and followed a slightly upwardly revised $53.9 billion shortfall in December.

Economists polled by Reuters had forecast the trade gap widening to $55.1 billion in January from a previously reported $53.1 billion in the prior month. Part of the rise in the trade deficit in January reflected commodity price increases.

The politically sensitive trade deficit with China surged 16.7 percent to $36.0 billion, the highest since September 2015. The deficit with Canada was the highest in three years.

The trade deficit continues to widen a year into the Trump presidency. Trump, who has claimed that the United States is being taken advantage of by its trading partners, in late January imposed broad tariffs on imported solar panels and large washing machines.

Trump last week announced he would impose import tariffs of 25 percent on steel and 10 percent on aluminum to protect domestic producers. While these actions may prove politically popular with Trump’s working class political base, especially in states hard-hit by factory closures and import competition, analyst warn they could undercut economic growth.

The protectionist measures have sparked fears of a trade war and could jeopardize talks on the North American Free Trade Agreement (NAFTA) linking Canada, Mexico and the United States. Trump ordered a renegotiation of the trade pact to offer terms more favorable to Washington.

Trump’s “America First” trade policies are part of an attempt to boost annual economic growth to 3 percent on a sustainable basis. The government in January slashed corporate and individual income taxes.

But with the economy almost at full employment, the increase in demand spurred by the $1.5 trillion tax package will probably be satisfied with imports, further worsening the trade deficit.

The surge in the January trade deficit was flagged by an advanced goods trade deficit report last week. When adjusted for inflation, the trade deficit increased to $69.7 billion from $68.5 billion in December.

The so-called real trade deficit is above the fourth-quarter average of $66.8 billion. This suggests trade would subtract from first-quarter gross domestic product unless the deficit shrinks in February and March. Trade sliced 1.13 percentage point from fourth-quarter GDP growth.

The economy grew at a 2.5 percent annualized rate during that period.

In January, exports fell 1.3 percent to $200.9 billion as shipments of civilian aircraft and crude oil declined. But exports of consumer goods rose to a record high and those of motor vehicles, parts and engines were the highest since July 2014.

Exports to China tumbled 28.1 percent. Imports were unchanged at $257.5 billion in January amid declines in imports of cellphones and civilian aircraft. Crude oil imports increased by $2.2 billion, reflecting higher prices.

Imports from China increased 2.9 percent.

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