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Economic Forecasts

Soaring Imports Keep Widening Trade Gap

Kiplinger's latest forecast on the direction of the trade deficit.

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GDP 2.9% pace in '18, up from 2.2% in '17 More »
Jobs Unemployment rate down to 3.8% by end '18 More »
Interest rates 10-year T-notes at 3.0% by end '18 More »
Inflation 2.5% in '18, up from 2.1% in '17 More »
Business spending Up 4% in '18, spurred by expanded tax breaks More »
Energy Crude trading from $55 to $60 per barrel in April More »
Housing Existing-home sales up 1.0%, new-home sales up 7.5% in '18 More »
Retail sales Growing 4.7% in '18 (excluding gas) More »
Trade deficit Widening 5%-6% in '18 More »

Strong consumer spending is fueling an import surge that is widening the U.S. trade deficit despite the Trump administration’s desire to shrink it. Busier global trade reflects the synchronous expansion of key regions in a way that is driving both exports and imports to record monthly levels. That, in turn, boosts U.S. manufacturing. But the pickup in imports is outstripping export gains, which means that Americans are spending a significant proportion of their incomes on goods made in competitor countries such as China, Mexico and Japan.

Import growth accelerated in late 2017, thanks to retailers stockpiling for the holidays, but also because of rising oil and commodity prices. With a low unemployment rate of 4.1% in the United States, rising incomes, and global economies posting their strongest growth since the 2007-09 recession, the trade deficit will keep widening. We see a 5%-6% increase in 2018 on top of the 10% rise already predicted for 2017, totaling roughly $555 billion.

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Through December, exports rose 5.6% from the comparable 2016 period; but imports jumped 6.7% over that period. President Trump believes that China and other nations manipulate the trade system. He’s also highly critical of the North American Free Trade Agreement with Canada and Mexico, and similar treaties, seeking to renegotiate or scrap them entirely because they end up sending jobs overseas. The counterargument is that trade deficits reflect American economic vigor because they demonstrate that U.S. businesses and consumers can step up spending, including on products from overseas.

Both exports and imports set records in November. However, the monthly deficit climbed to $50.5 billion — nearly a six-year high — because of a sharp pickup in purchases of cell phones and household goods made in China. Petroleum imports jumped 10% to $17 billion, partly because the average barrel price rose to $50.10, from $47.26 in October. On the positive side of the ledger, exports of commercial aircraft, telecommunications equipment, cars and auto parts all were stronger than in October.

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Sources: Department of Commerce, Trade Data