Yesterday we reported that the US Trade Deficit hit its highest since 2008.What we didn’t account for however was how it affected the GDP.
The trade deficit rose 5.3 percent in December to $53.1 billion, more than expected by economists. For the entire year, the trade gap jumped 12.1 percent to a nine-year high of $566 million, according to data released by the Commerce Department Tuesday.
The trade gap widened despite exports rising 1.8 percent and hitting an all-time high of $203.4 billion. Imports, however, rose by more: 2.5 percent to $256.5 billion.
A widening trade deficit threatens to undermine the Trump administration’s goal of achieving 3 percent or better economic growth. Trade deficits subtract from gross domestic product. In the fourth quarter of 2017, a larger than expected trade deficit depressed economic growth by slightly more than a full percentage point, so that the economy grew at just a 2.6 percent rate.
I didn’t even take into account how trade deficits affect the GDP. 2.6% growth was underwhelming considering it was on pace to hit over 3% and it is now clear that Trade Deficits were likely a major thing holding it back.
