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US Trade Deficit in December was the largest in Nine Years


Overall, in 2017, the USA trade gap leaped 12.1 percent to a nine-year high of $566 billion.

A widening trade deficit threatens to undermine the Trump administration's goal of achieving 3 percent or better economic growth.

The trade gap also suggests that a 3% annual economic growth might be hard to achieve, since the Imports, which subtract from gross domestic product, could get a further boost from a $1.5 trillion tax cut package that became effective in January.

The fiscal stimulus comes when the economy is nearly at full employment, which means the resulting increase in demand will likely be satisfied with imports.

According to The Washington Post, economists blame a stronger economy for an increase in trade generally and noted that imports rose faster than production. Overall, the goods trade balance continues to be in deficit, while the surplus in services trade dropped slightly in December to Dollars 20.2 billion.

The trade gap widened in December, growing 5.3 percent to $53.1 billion.


RDQ Economics said in a client note the trade gap data is a sign of strong demand, which could favor an increase interest rates by the Federal Reserve - the very prospect that set Wall Street's nerves on edge.

The Commerce Department said Tuesday that the trade gap in goods and services rose to $566 billion past year, the highest level since $708.7 billion in 2008. Gross Domestic Product (GDP) rose 2.6 percent in the third quarter, however, the higher trade deficit shaved off 1.1 points.

The goods-trade deficit with southern neighbor Mexico increased 10 percent a year ago to $71.1 billion, the highest since 2007. So while changes in trade policy can shift imports and exports from one country to another, for example, reducing the American trade deficit with China while increasing its trade deficit with Thailand, they are unlikely to reduce the American trade deficit overall.

Trump has repeatedly threatened to terminate the North American Free Trade Agreement unless the 1994 pact linking Canada, Mexico and the USA can be made more favourable to Washington. And he really wants to impose trade sanctions on China for the theft of US intellectual property.

"The terms of trade are not completely unfair", said Chris Rupkey, chief economist at MUFG in NY. But bilateral trade balances can increase for many reasons, both bad and good - for example, if wealthier American consumers want to buy more stuff - making it a problematic metric for measuring fair trade. Trump has sought to reduce the deficits with China and Mexico.

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