Overvalued dollar drives record US deficits with China, rest of world
Washington. Annual data released this morning by the Commerce Department shows that America’s overall trade balance continued to worsen in 2018. Not only did the United States record its highest-ever global trade deficit in goods—at $891.3 billion—but the annual goods deficit with China soared to a stunning new record of $419.2 billion.
The Coalition for a Prosperous America (CPA) attributes the rising trade debt to an increasingly noncompetitive dollar, a fast-growing US economy, and a surge in imports intended to beat last year’s tariffs. And all of it comes even as President Trump’s trade measures begin to impact overall US trade flows.
“It takes time to undo the 20+ years of trade mercantilism, currency manipulation, and other predatory practices by China and others, that has resulted in our $17 trillion accumulated trade deficit in goods. The reversal won’t happen overnight but will take years,” said CPA Chairman Dan DiMicco.
“President Trump and his team need to continue being aggressive on trade, especially with regard to China’s predatory economic strategies and rebuilding American manufacturing to improve our trade performance,” DiMicco continued. “Any deal with China must be comprehensive and enforceable, going far beyond sales of soybeans and semiconductors. Most importantly, the administration must broaden its approach by developing policies to adjust the value of the dollar to a more competitive level.”
Overall, the US ended 2018 with a goods and services trade deficit of $621.0 billion, up 12.5 percent from 2017—the worst in a decade. Even more egregious, the $891.3 billion annual goods deficit represents a 10.4 percent increase from 2017—the worst showing in US history.
US goods trade deficits with both China and Mexico also set new records in 2018. The $419.2 billion trade deficit with China is 11.6 percent worse than 2017, and the $81.5 billion goods shortfall with Mexico represents a whopping 14.9 percent jump from 2017. Goods debt also increased 7.1 percent with Germany, to $68.3 billion. The US goods deficit with Japan clocked $67.6 billion. And America’s goods deficit with the 28-nation European Union rose 11.8 percent, to $169.3 billion.
CPA sees the politically sensitive goods deficit with China as particularly troubling. Michael Stumo, CEO of the CPA, explained, “China’s exporters engaged in ‘front running’ ahead of President Trump’s tariffs in the expectation that the 10 percent tariffs would increase to 25 percent on January 1, 2019.
However, Stumo sees little surprise in the overall rise of America’s goods deficit, given the excessive strength of the US dollar over the past six years. He said, “An overvalued currency harms a country’s export competitiveness. The trade deficit has increased over the last several years as the dollar continued going up. This year is no different. CPA expected the trade deficit to increase in 2018 and we expect it to rise again in 2019. Absent action to adjust the dollar to a competitive level, the International Monetary Fund projects the US trade deficit to reach $800 billion by 2024.”
Stumo continued, “The US is, in effect, focused upon selling the world Treasuries instead of goods and services. We eat global oversupply of capital which means we also eat a global oversupply of goods. Our research shows that adjusting the dollar by 27 percent to a competitive exchange rate would, by 2024, balance trade flows, grow the economy by an additional one trillion dollars, and create an additional 6.7 million jobs.”
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