Macroscope | Why a stronger yuan, not tariffs, may be Trump’s best hope to shrink US trade deficit
- Neal Kimberley says the dollar’s strength has widened the trade deficit by making US exports more expensive and goods it imports cheaper, defeating a purpose of Trump’s tariffs
In spite of, or perhaps influenced by, US tariffs on imports from China, the US trade deficit hit a 10-year high in October. The median forecast of economists polled by Bloomberg had been for a figure of US$55 billion but the data released on December 6 showed the actual number was US$55.5 billion.
That US$55.5 billion figure represented a rise of 1.7 per cent from September’s US$54.6 billion, a figure which itself had been revised up from the original US$54 billion. The keynote US goods trade deficit with China jumped to a record US$43.1 billion in October, up 7.1 per cent from September’s US$40.2 billion.
Of course, there would be no point in Chinese exporters acting in such a way if there were no real expectation of selling those goods in the US market. It might not go down well in the White House but it may be that US demand for Chinese goods is relatively inelastic and that, regardless of tariffs, US demand for Chinese goods remains solid.
