US trade gap rises to highest level since 2008

The United States' trade deficit rose in January to the highest level since October 2008, defying President Donald Trump's efforts to bring more balance to America's trade with the rest of the world.

The Commerce Department said Wednesday that the trade deficit rose to US$56.6 billion in January, up 5 per cent from US$53.9 billion in December and the highest since October 2008's US$60.2 billion trade gap. The trade deficit the gap between what America sells and what it buys abroad has risen for five straight months.

Trump rattled financial markets last week by promising to slap big tariffs on imported steel and aluminium. He blames persistent deficits on abusive practices by US trading partners and on bad trade deals that put American companies at a disadvantage or encourage them to move factories overseas.

Exports fell 1.3 per cent to US$200.9 billion in January, and imports were flat at US$257.5 billion.

The United States ran a US$76.5 billion deficit in the trade of goods, which was partially offset by a US$19.9 billion surplus in services such as education and banking.

The US$36 billion January deficit with China was the highest since September 2015. The trade gap with Mexico narrowed to US$4.1 billion from US$5.4 billion in December.

Trump upset America's allies last week by vowing to slap tariffs of 25 per cent on imported steel and 10 per cent on aluminium. Europe has threatened to retaliate with sanctions on US exports of blue jeans, bourbon, and Harley-Davidson motorcycles, raising the risk of a potentially destructive trade war.

"He is not afraid of getting into a trade war although that is not what we want," Treasury Secretary Steven Mnuchin said in an interview Wednesday on the Fox Business Network. "We are just looking for fair and reciprocal trade."

Trump is also demanding a rewrite of the 1994 North American Free Trade Agreement with Mexico and Canada in an attempt to reduce the US trade deficit with Mexico and to shift more auto production north of the border.

The president views trade deficits as a sign of economic weakness and as the result of unfair practices by America's trading partners. Most economists say they are caused by bigger economic forces, mainly the fact that the United States consistently spends more than it produces.

The trade gap has continued to rise since Trump entered the White House partly because the US economy is strong and American consumers have an appetite for imported products and the confidence to buy them.

AP