America’s trade deficit in goods with the rest of the world rose to its highest level in history last year as the United States imported a record number of products, including from China, widening the deficit to $891.3 billion and delivering a setback to President Trump’s goal of narrowing that gap.
The increase was driven by some factors outside Mr. Trump’s control, like a global economic slowdown and the relative strength of the United States dollar, both of which weakened overseas demand for American goods. But the widening gap was also exacerbated by Mr. Trump’s $1.5 trillion tax cut, which has been largely financed by government borrowing, and the trade war he escalated last year.
It is a case of textbook economics catching up with some of Mr. Trump’s unorthodox economic policies. Economists have long warned that Mr. Trump’s tax cuts would ultimately exacerbate a trade deficit he has vowed to reduce, as Americans, flush with extra cash, bought more imported goods.
His trade war with Beijing also widened the gap: Stiff tariffs on Chinese goods helped slow China’s economy, crimping American exports, which declined nearly 50 percent in December from the same month a year before.
“All countries run trade deficits whenever they consume more than they produce,” said Kimberly Clausing, an economist at Reed College in Oregon. “And when we borrow to finance tax cuts, like we did with the Tax Cuts and Jobs Act, we make these imbalances worse.”
The trade deficit is the difference between how much a country sells to its trading partners and how much it buys. It generally includes both goods and services, though Mr. Trump has focused almost exclusively on the deficit in goods. He has long boasted that his trade policies would reduce that gap, which he views as a measure of whether partners like China and the European Union are taking advantage of the United States, a diagnosis few economists share.
Instead, in a year in which Mr. Trump imposed tariffs on steel, aluminum, washing machines, solar panels and a variety of Chinese goods, the overall trade deficit grew 12.5 percent from 2017, or nearly $70 billion, to $621 billion, the Commerce Department said Wednesday. Although the United States recorded a trade surplus in services, the trade deficit in goods with the European Union and Mexico grew more than 10 percent as imports rose faster than exports.
In December, the overall deficit in goods and services, which includes everything from computers and washing machines to tourism and intellectual property, rose 19 percent from the previous month, to $59.8 billion. It was the highest monthly trade deficit since 2008, when the American economy was mired in recession.