U.S. Trade Deficit Headed Up in 2017

Despite a pickup in exports, the deficit on trade continues to run well above last year’s levels as U.S. consumers buy up foreign-made goods, from cars to cellphones. For 2017 as a whole, the gap will widen by 4% after back-to-back $500-billion deficits in 2015 and 2016, which is certain to aggravate global trade tensions.

The Trump administration is moving aggressively to renegotiate some trade deals, pull out of others and threaten retaliation against nations that it says treat the U.S. unfairly on trade issues. Despite all that, imports are up nearly 7% in the first six months this year from the comparable year-earlier period, outstripping the relatively strong 6% rise in exports. That disparity has helped drive the first-half deficit 10.7% higher than a year ago.

Some positive developments point to improvement in the second half of 2017 that will keep the deficit from ballooning further. For example, the pace of economic growth is accelerating in some key foreign markets, including Europe. That will create opportunities for U.S. exporters, particularly for those that produce machinery and medical equipment. Also, the U.S. dollar has been depreciating against the euro and several other currencies, which makes U.S.-made goods a better bargain in foreign markets. During June, exports hit a 2.5-year high, up 1.2% to $194 billion. Imports dipped slightly by 0.2% to $238 billion, with the result that the monthly deficit fell 5.9% to $44 billion.

Major questions remain about how Trump administration policies will affect future trade flows. The United States has now pulled out of a 12-nation Trans-Pacific Partnership that would have brought freer trade to 40% of the world, essentially ceding trade leadership in the Asian region to China. It is mulling a trade action against China over issues including stricter trademark and intellectual property protections. As well, the administration is about to launch a renegotiation with neighbors Canada and Mexico of the North American Free Trade Agreement, aiming to curb Mexican imports and slow the shift of U.S.-based production into cheaper Mexican factories. In the future, Washington says it will rely more upon bilateral trade agreements, rather than sweeping pacts that bind it to a set of trading rules. Yet to be seen, though, is whether shifting away from multilateral agreements will slow the pace of growth in trade flows and potentially reduce the U.S.’s influence in the bodies that shape the rules of trade across the world.

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source: http://www.kiplinger.com/article/business/T019-C000-S003-trade-deficit-forecast.html

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