Trade Deficit Forecast

Economic Forecasts

U.S. Imports Soften as Trade War Rages

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

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GDP 2019 growth will be 2.3%; 1.8% in 2020 More »
Jobs Job gains of about 170,000 per month in '19 More »
Interest rates 10-year T-notes staying around 2% until trade war ends More »
Inflation 2.3% in ’19, up from 1.9% in ’18 More »
Business spending Up just 2% in ’19 amid uncertainty of trade war More »
Energy Crude trading near $60 per barrel in October More »
Housing 5.35 million existing-home sales, down 1.1% in ’19 More »
Retail sales Growing 4.3% in '19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

There’s been scant progress in shrinking the U.S. shortfall on global trade, despite a steadily intensifying tariff battle with China. The Trump administration has now imposed penalties on virtually everything that China sends to the United States, including, most recently, 15% tariffs on about $125 billion of popular consumer items such as smart speakers, Bluetooth headphones and clothing. That is in addition to 25% tariffs on about $250 billion of other imports from China. In a continuing round of tit-for-tat retaliation, Beijing slapped additional duties on some U.S. goods on a $75-billion target list, and for the first time put a 5% tariff on imports of U.S. crude oil. Another set of Chinese merchandise worth about $160 billion will be hit by a 15% U.S. levy in mid-December.

President Trump warns that if the world’s two largest economies can’t reach an agreement that deals with sensitive issues, including better protection for U.S. intellectual property in China and measures to lower the bilateral deficit, then he will be even “tougher” with China if he wins a second presidential term. There are also strains with other key trade partners, including the European Union, which is deeply resistant to opening its agricultural markets to U.S. farm goods. That is complicating a bid to strike a free-trade deal between Brussels and Washington. The administration is holding out a threat of tariffs on imports of automobiles from Germany and other European countries if the talks don’t succeed.

China is by far the principal target for U.S. ire because it is the biggest single source of deficits. Trump is urging manufacturers to bring production back to the United States or to shift from China to other locations. The U.S.-China trade tensions cause uncertainty for businesses that are planning investments or establishing supply lines and have caused big swings in monthly trade deficits as exporters and importers try to avoid getting caught in the tariff fight between Washington and Beijing.

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

Through the first seven months of this year, the U.S. deficit with China, which is seen by Trump as a sign that Beijing is taking unfair advantage of the United States, has narrowed to $199.8 billion, from $222.9 billion in the same period of 2018. But U.S. exports to China are dropping and likely will continue to do so in coming months. China’s commerce ministry said in early August that American farm products are no longer being bought by Chinese companies — a painful blow for everyone from farmers to makers of agricultural machinery.

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During July, the U.S. trade deficit shrank a modest 2.7% to $54 billion. But the details of the monthly trade report were not encouraging. The bilateral deficit with China climbed 9.4% to $32.8 billion. Imports from China were up 6.4%, while exports dropped 3.3%. The goods trade deficit with the European Union was a record $20.1 billion in July and the shortfall with Germany jumped 45% to $7 billion. Exports of U.S. industrial supplies and materials worldwide dropped by $1.7 billion and crude oil sales decreased by $500 million.

The trade deficit for the full year of 2019 will climb 7% to 8% to around $670 billion. It’s already up 8% year over year during the first seven months of 2019, to $373.8 billion. That increase is partly because a relatively strong U.S. economy continues to pull in imports. In addition, the dollar’s strength against other major currencies adds buying power to consumers’ taste for imported cars and other goods. It also makes made-in-America goods more expensive in foreign markets – a sore point for the administration, which complains about the greenback’s high value. U.S. unemployment is also low, further bolstering consumer demand. But there are warning signs flashing about the U.S. economy’s health as well, with potential consequences for trade volumes. Notably, manufacturers surveyed in August reported that export orders received by American factories plunged to their lowest level since April 2009, pointing to falling overseas business and the risk that companies will have to trim production in coming months.

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Sources: Department of Commerce, Trade Data