In Blow to Trump, America’s Trade Deficit in Goods Hits Record $891 Billion
The value of China’s currency, which is determined partly by the market and partly by the government, weakened against the dollar last year, blunting the effect of Mr. Trump’s tariffs by making Chinese goods even cheaper. The currency began rising again in the fall, as President Xi Jinping of China met Mr. Trump in Argentina late last year to begin hammering out a trade pact, said Brad Setser, a senior fellow for international economics at the Council on Foreign Relations.
“China certainly allowed the market to push the value of the yuan down against the dollar over the summer,” Mr. Setser said.
As part of the trade deal in the works, the United States has secured a commitment from Beijing not to artificially weaken its currency, according to administration officials.
The relative strength of the United States economy is also a large factor in the widening deficit, along with the $1.5 trillion tax cut Mr. Trump signed in 2017, which accelerated growth last year.
Money from the tax cuts helped Americans buy more imported goods than ever in 2018. And to finance the tax cuts, the government needed to borrow more dollars, some of which came from foreign investors. Foreigners primarily get those dollars by selling more goods and services to Americans, which will necessarily widen the trade gap, an effect that many economists predicted at the time Mr. Trump signed the tax cuts.
The tax cuts are also helping to swell the federal budget deficit, which Mr. Trump similarly pledged to reduce — and, in fact, eliminate — as a candidate. On Tuesday, Treasury Department figures showed the budget deficit widening, and it is on track to top $1 trillion this fiscal year. Revenue from personal and corporate income taxes was down by 9 percent in January, compared with the same month a year ago.
As with the trade deficit, many economists are growing less alarmed by the budget deficit than in previous years. However, Federal Reserve officials and some economists warn that federal borrowing is growing too quickly and will ultimately swamp the American economy, with the United States paying huge sums of interest on the debt, diverting funds from social safety net programs like Medicare and Social Security. The Fed chairman, Jerome H. Powell, warned lawmakers at a House hearing last week that the federal debt was on an “unsustainable” path.
Mr. Powell was asked during the hearing if he would also say that the trade deficit was unsustainable. “I don’t think I would say that,” he replied.