Rising U.S. Trade Deficit Gives Trump More Fodder Against Free-Trade
The U.S. trade deficit just got bigger. The United States exported less in October, especially as far as soybeans were concerned. Such is the legacy that Barack Obama has left for President Trump to ponder. The President-elect may put even more effort in targeting what he thinks are unfair free trade deals. The data suggests that trade could slow down growth in the fourth quarter. (Source: “U.S. Trade Deficit Widened Sharply in October,” The Wall Street Journal, December 6, 2016.)
What’s especially troubling is that despite all the promises of free trade, the U.S. has not benefited much at all. It seems that Donald Trump was right about the North American Free Trade Agreement (NAFTA) and free trade after all. Neither NAFTA nor the U.S.–Korea Free Trade Agreement (KORUS) have done much good. (Source: “As free trade pacts expand, U.S. trade deficit soars. Why add one more?,” Reuters, February 17, 2015.)
Advertisement
The evidence suggests that Trump was also right about scrapping the Trans-Pacific Partnership (TPP). This “partnership” would have resulted in a free trade deal with 12 countries of the Pacific Rim. The TPP, modeled after KORUS, would have been disastrous. Trump famously said of trade deficits: “They win, we lose.” (Source: “America’s trade deficit grows at fastest pace in 19 months,” CNN, December 6, 2016.)
Until last year, the Korea trade deal achieved a 50% hike in the U.S.’s trade deficit with South Korea in its first two years alone. (Source: Ibid.) Meanwhile, last month, the trade deficit increased 17.8% to $42.6 billion dollars in October, said the U.S. Department of Commerce. (Source: The Wall Street Journal, op cit.)
The downturn in soybean shipments, which affects exports, could put more negative pressure on GDP growth in the fourth quarter. The economy will depend more on a recovering housing market. Perhaps higher oil prices could spur more drilling in oil and gas.
Free trade aside, the prospects for a recovery of exports are slim to none under Trump. Exports of U.S. goods have felt the weight of the strong dollar against the currencies of major U.S. trading partners over the past few years.
This pattern can only get worse. It’s not Trump’s fault. The European Union has been under heavy political and economic pressure with no respite on the horizon. The Italian referendum served up just the latest blow on the single currency and the Eurozone.
With the dollar resuming its rally following Donald Trump’s victory in the November 8 presidential election, exports could suffer in early 2017. Already, exports to the European Union fell by 1.1%, with a 12.2% drop for goods shipped to the United Kingdom.
Exports to China, on the other hand, surged by 32.8% to their highest level since December 2013. But, Trump’s comments on China, his call to Taiwan, and his “outsourcing” tax could cause that figure to drop. Imports from China increased 4.2%—reaching a year high. The trade deficit with China fell 4.2% to $31.1 billion in October.
