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US trade deficit reached a record high past year

US trade deficit reached a record high past year

The deficit jumped almost 19% in December, pushing the trade imbalance for all of 2018 to widen to a decade-long high of $621bn.

For goods only, the USA deficit with the world surged to a record $891.3 billion in 2018 from $807.5 billion the prior year.

A trade deficit occurs when a nation's imports exceed its exports.

Economists say the trade deficit is swelling because of broad economic forces, including a chronic shortfall in national savings that was exacerbated by last year's US$1.5 trillion corporate and personal income tax cut. Simultaneously, US exports fell 1.9% as foreign demand for civilian aircraft and oil products declined.

But soybean exports, a crucial crop across vast expanses of the country, fell 18 percent for the year to $18.2 billion amid a Chinese boycott sparked by Trump's trade war. The trade gap reached the largest total since 2008, when it was 708.7 billion dollars.

Early comments by economists and other observers on social media included remarks such as this one by commenter Catherine Rampell, who tweeted: "Trump is obsessed with trade deficits, (incorrectly) believing them a measure of who's winning and who's losing". Harvard Kennedy School professor Jeffrey Frankel warned in January 2018 that "the increase in spending afforded by tax cuts goes entirely, rather than only partly, into the current-account deficit".

But Trump has consistently singled out the trade gap as a target in his America First policies. In a March 2 speech to a conservative political group, he called them "the greatest negotiating tool in the history of our country" and credited them with bringing trade partners such as China to the bargaining table.

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The Fed said slowing global growth and the government shutdown weighed on the USA economy at the start of the year but that it continued to grow.

What is a trade deficit?

The trade deficit isn't necessarily a bad thing, and it's an oversimplification to look at the deficit without putting it into the context of the economy.

The dollar is now valued 19 per cent above its 10-year average against the currencies of major USA trading partners, according to Federal Reserve data.

Revision estimates for fourth-quarter GDP will be coming down following an unexpectedly deep $59.8 billion trade deficit in December.

Nancy Fox, Ph.D., an economics professor, said Chinese and American officials have since then continued to negotiate for a new trade deal, but that when the USA imposed tariffs on China, the Chinese imposed tariffs on the U.S.

A prospective deal can't put all the burden of proof that agreements are being carried out on Beijing, former Chinese officials with experience of dealing with the USA have said, warning that the "strong enforcement language" Trump has pledged will be seen as unfair unless it also binds the United States to address China's own grievances.

Simultaneously, the Federal Reserve raised interest rates four times previous year to offset fears of an overheating economy, thereby increasing the strength of the dollar and encouraging purchase of relatively cheap foreign goods.