Trade Deficit Forecast

Economic Forecasts

Narrower U.S. Trade Gap Is Likely Temporary

Kiplinger's latest forecast on the direction of the trade deficit.

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GDP 2.6% growth in '19 More »
Jobs Job gains near 180,000 per month in '19 More »
Interest rates 10-year T-notes at 2.8% by end ’19 More »
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Housing 5.35 million existing-home sales in ’19, up 0.2% More »
Retail sales Growing 3.7% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

There’s been some progress this year in shrinking a gaping U.S. trade deficit, though it’s unlikely to be sustained. The Trump administration is focused on ratcheting down annual shortfalls through a strategy of negotiations and punitive tariffs on imports from allies and competitors alike, especially China, which is by far the key source of persistent deficits. Washington and Beijing seemed to be moving toward at least a modest deal on trade to boost U.S. goods and agricultural exports, and to give American firms operating in China greater protection from intellectual property theft. But negotiations are overshadowed by rancor over how to enforce the terms, throwing the timing of any deal into doubt amid threats of a new round of punitive tariffs. In the first three months of this year, the deficit is down 3.7% to $150.4 billion, leaving the administration some room to claim its tariff war is yielding positive results.

The United States ramped up pressure on China and other trade partners during 2018, imposing tariffs on $250 billion of goods imported from China, an action that drew retaliatory tariffs on U.S. exports. Washington struck a cease-fire with China this year, suspending threats to penalize $200 billion more of its exports while the two sides negotiated toward a longer-term agreement. U.S. intent is to get greater access to Chinese markets for American firms, and to strike enforceable safeguards against theft of U.S. copyrights and forced transfers of other intellectual property. China’s bid to modify some terms that the U.S. claimed it had already agreed to triggered fresh American threats to boost existing tariffs on imports from China and to consider expanding them to another $325 billion of imports. Washington also hit allies with tariffs last year, including penalties on steel and aluminum imports from Canada and Mexico, despite having renegotiated a free-trade agreement with its North American neighbors. Ratification of the new United States-Mexico-Canada Agreement, or USMCA, is pending in all three countries. It’s an uphill task in Congress because USMCA is encountering objections from Democratic lawmakers who claim its labor protection provisions are too weak. At the same time, the Trump administration’s refusal to lift metals tariffs is angering allies in Europe and North America, some of whom consider it a pressure tactic to make them accept quotas on their U.S. shipments.

See Also: 10 Companies Already Hurt by President Trump's Tariffs

The odds are that the U.S. trade deficit will climb 7% to 8% to a record $665 billion this year. The U.S. economy continues to outperform the rest of the world and the dollar’s value remains buoyant, so American consumers are enjoying a booming domestic job markets and also have the buying power to purchase more imported goods. At the same time, the greenback’s strength is pushing up the cost of made-in-America products, making them less competitive in overseas markets. A trade deal that sees China buy more U.S. goods and agricultural products like soybeans would help restrain growth in the deficit but won’t reverse it. There are also signs in the trade data of potentially lingering damage to exports from the global grounding of Boeing’s 737 Max aircraft after a second crash earlier this year. March orders for new commercial aircraft slipped to $5.1 billion from $5.8 billion in February.

The monthly trade deficit increased 1.5% during March to $50 billion on steadily rising imports. Higher imports of oil, food, vehicles and pharmaceuticals accounted for most of the pickup. Exports were higher, too, largely due to more shipments of soybeans, which jumped by more than half a billion dollars from February levels. That is likely a result of the temporary détente struck earlier this year between the United States and China. If trade relations worsen, China is likely to curtail its purchases of U.S. ag products, so a repeat of higher soybean sales can’t be counted upon. The politically sensitive bilateral deficit with China dipped to a five-year low of $21 billion in March, largely a result of reduced imports.

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Sources: Department of Commerce, Trade Data