U.S. Trade Deficit Widening: Trouble Brewing?
|Executive Summary
The U.S. trade deficit widened in November to its highest level in nearly six years. Because a current account deficit is caused by a shortfall of national savings relative to national investment, the red ink in the current account likely will widen further going forward due, at least in part, to recent tax legislation. In our view, the modest current account deficit that the United States is incurring is not a “problem,” at least not from a purely economic standpoint. The country is having few troubles attracting the capital inflows that are needed to finance the deficit, and the dollar’s depreciation to date has been orderly. However, the bilateral trade deficits that the United States incurs withChina and Mexico have not gone unnoticed in Washington, and wider deficits going forward could provoke a policy response from the United States. A trade war, should one develop, likely would have negative financial and economic consequences.
Trade Deficit Reaching Multi-Year Highs
Recently released data show that the U.S. deficit in international trade in goods and services widened to $50.5 billion in November from $48.9 billion in October 2017, which was the largest deficit in nearly six years (Figure 1). Indeed, the overall trade deficit generally widened in 2017 after remaining roughly unchanged through most of 2015 and 2016.
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