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.