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The U.S. trade deficit– behind the numbers

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The 2018 total trade deficit exploded to $621 billion, up 12.5 percent as imports increased 2.1 percent and exports declined by 1.9 percent. The deficit in goods merchandise soared to 891.2 billion, the highest on record in the history of the economy. On the month the trade deficit increased 18.8 percent as firms moved to buy as many good used at earlier stages of production and intermediate goods ahead of a possible increase in import taxes linked to the trade spat with China.

The large problem inside the U.S. trade picture is that the combination of tariff policy and the pro-cyclical tax cut have resulted in an unsustainable explosion in the overall deficit. The tax cut stimulated an increase in the value of the dollar and greater take home pay which Americans used to purchase cheap high quality foreign goods. One of the iron laws of economics is that if a government chooses to turbo charge growth via the fiscal channel, then one should anticipate a greater deficit via the trade channel. Faster growth and narrowing trade deficit are simply mutually exclusive in an open global economy that provides consumers with an array of choices.

US trade deficit Dec 2018

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About Joseph Brusuelas

@JoeBrusuelas

Joe Brusuelas, “chief economist to the middle market,” is the preeminent voice championing issues and policies facing midsize companies in the United States and around the world. An award-winning economist, Brusuelas has more than 20 years’ experience analyzing U.S. monetary policy, labor markets, fiscal policy, international finance, economic indicators and the condition of the U.S. consumer.

A member of the Wall Street Journal’s forecasting panel and the UCLA Anderson School of Management's Board of Directors, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions. He also frequently offers his insights on the U.S., Canadian and global economies in the financial media. In 2020, he was named one of the 100 most influential economists by Richtopia. In December 2023, Brusuelas and the economics team were recognized on Bloomberg's list of Best Bond Forecasters after correctly predicting where the benchmark Treasury would end the year.

Before joining RSM in 2014, Brusuelas spent four years as a senior economist at Bloomberg L.P. and the Bloomberg Briefs newsletter group, where he co-founded the award-winning Bloomberg Economic Brief. Earlier in his career, he was a director at Moody's Analytics covering the U.S. and global economies for the Dismal Scientist website. He also served as chief economist at Merk Investments L.L.C. and chief U.S. economist at IDEAglobal.

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