Brief Macro: Understanding the Widening of the U.S. Trade Deficit and more

In this briefing:

1. Understanding the Widening of the U.S. Trade Deficit

1. Understanding the Widening of the U.S. Trade Deficit

• The widening of the U.S. merchandise trade deficit to a record $891 billion in 2018 received considerable attention in the financial press this week but the criticisms that this widening represented either weakness in the U.S. economy or a failure of U.S. economic policy are misplaced.
• We expected a widening of the trade deficit in 2018 as a consequence of the tax cut and stronger economic growth.  Higher investment spending and a wider fiscal deficit were all but certain to lead to a larger trade gap.
• The dollar has firmed as the trade gap has widened over the last four years, which suggests the net overseas demand for U.S. assets has been rising faster than the current account deficit.