Trade Deficit Widens to Record Level

US Trade Representative Robert Lighthizer

USA stock futures jumped on Monday on reports the United States and China were close to striking a trade deal after a year-long tariff skirmish while the dollar eased as traders wagered Federal Reserve policy will remain accommodative.

The research also sheds light on one reason Trump might be eager to strike a trade deal with China, even if it simply ratchets down the current trade tensions, while saving more hard negotiations on Chinese industrial policy for later.

The widening gap was fueled by a steady US economy, leading Americans to buy more products from overseas.

While speaking to reporters at the White House Tuesday evening, economic adviser Larry Kudlow said the most recent talks in Washington had "great success".

A paper published on Saturday by economists from the Federal Reserve Bank of New York, Princeton University and Columbia University found that tariff revenue collected by the United States is "insufficient to compensate the losses being born by the consumers of imports".

December's trade imbalance worsened because United States imports rose 2.1%, while exports to other countries fell 1.9%.

The NYT says the deal would "largely require Beijing to make big purchases of American agricultural and energy goods and to lower some barriers that prevent American companies from operating in China". But while that might be of concern for Trump, many economists disagree with his emphasis on reducing the deficit.

Trump persists with the import levies even as some supporters push for him to also act on other forces fuelling the trade deficit, including a robust dollar.

However, Mr Trump may choose to lift tariffs on European cars and parts after the US Commerce Department produced a report examining whether the imports threaten national security.

David Dollar, economist, expert on China and senior fellow at the China Center at the Brookings Institute, told students and faculty the world is nervous about rising protectionism in the US and America's imposition of trade tariffs on China during a lecture February 26 in Mandeville Hall. Still, U.S. stocks have regained most of their losses from the autumn when investors were more pessimistic about trade prospects. "When we impose a tariff, it is the domestic consumers and purchasers of imports that bear the full cost of the tariffs", said David Weinstein, an economics professor at Columbia University, who co-authored one of the papers. The tariff would remain "at 10 percent until further notice". "It's pretty unclear that this trade war is a net win for the economy at this point".

The US duties on US$200 billion of Chinese imports come on top of the first round on US$50 billion of goods, which Beijing will also want to see eliminated.

Trump on Friday asked China to immediately remove all tariffs on U.S. agriculture, though he didn't indicate if his demand was limited to retaliatory duties or more far-reaching. We had to dust them off.

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