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Record trade deficit will put pressure on Trump in China talks

Record trade deficit will put pressure on Trump in China talks

The US trade deficit climbed a 10 year high in December inflicting a smack to Donald Trump's attempts to hamper imports particularly from China with trade barrier tariffs.

Following a spat between the United States and the EU when America lifted tariffs on steel and aluminium, Mr Trump and European Commission President Jean-Claude Juncker past year reached a truce.

If you add in the services sector, the USA trade deficit is still $621 billion, $100 billion more than under President Barack Obama.

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.

Trump views trade as a zero-sum game, in which the U.S. benefits if other countries lose.

Trump has last week delayed a planned tariff increase to 25 percent from 10 percent on USD200 billion of Chinese products.

Separate data from China's customs administration provide part of the explanation. Such policies weaken the ability of USA companies to compete and inflict billions in losses, according to a report previous year by Lee Branstetter, an economist at Carnegie Mellon University and a fellow at the Peterson Institute for International Economics.

But in 2018, the USA exported fewer goods compared with how much it bought.

Other studies show tariffs costing US consumers tens of billions of dollars in higher prices, not to mention the $8 billion in tax dollars sent to prop up farmers hard hit by Chinese retaliation. Trump has previously acknowledged Japan's trade surplus with the USA, though prior to this week he had done little to concretely address the issue. He owns it. So how's the trade deficit going?

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"At the end of the day, the data don't lie", he added.

And that's a bad thing how, exactly?

Trump also halted talks on the Transatlantic Trade and Investment Partnership (TTIP), which had been negotiated between the European Union and the USA since 2013 during the Obama administration. Absent aggressive efforts to reduce its value, the rising dollar will put continuing upward pressure on the trade deficit, and downward pressure on employment and output in US manufacturing.

The trade gap with China also hit a record $419 billion, underscoring the stakes for the president's bid to reach a deal with Chinese President Xi Jinping as soon as this month.The shortfall topped the 2006 record of $838.3 billion, set as the housing bubble was peaking, and marked the third consecutive year of rising deficits.

The President has successfully negotiated new agreements with South Korea, North American neighbours Canada and Mexico, and appears close to a deal with China. "If President Trump really is focused on economic growth, then he should be welcoming these big trade deficits".

The growth in the USA and the higher interest rates that have accompanied it also mean the United States dollar has strengthened against its major trading partners, making imports cheaper and exports dearer.

Combined, those two trends helped push the nation's deficit in goods trade up by $9.0bn to $81.5bn. Democrats, if they play this smart, have a chance to make the case Trump is too ignorant and gullible to protect the well-being of US consumers, workers and producers.

Thomas Duesterberg, a senior fellow at the Hudson Institute, says in the long run that means continuing to sell American technology to China. There is a strong likelihood Trump might walk away from the ongoing trade talks with China.