America’s trade deficit widened in February, reaching the largest monthly gap between exports and imports of goods and services in a decade.
The figures released by the US Commerce Department show a global trade deficit of €48 billion in February, with Ireland being the second largest contributor to this deficit in Europe, behind Germany.
The latest figures come as President Donald Trump tries a variety of tactics to reset the balance between US imports and exports on the global stage. China has been the target for most of his vitriolic comment so far, as they are the largest exporter to the US globally, but buy much less from the US.
That led to a gap of €312bn in China’s favour last year, which has increased 20% in the early months of this year.
Wall Street and European stock markets recovered quickly last week from the latest threats in the rising trade tension between the US and China, when each announced plans for tariffs on $50bn (€41bn) in increased tariffs, indicating that businesses believe the exchanges are more bluff than substance for the time being at least.
And yesterday, Chinese President Xi Jinping appeared to try to de-escalate the spat by pledging to open the huge Chinese market to more car imports.
However, there is no doubting that a full-blown trade war between the world’s two largest economies, should one develop, will damage international trade growth and could cause a return to global economic contraction.
There is also the possibility of the Trump administration widening its tariff attacks and threats thereof, to other countries who contribute to the over US trade deficit, including Ireland.
South Korea, one of the early ones singled out by Trump because of its trade surplus with the US, attempted appeasement and has more than doubled its purchases of US semiconductor manufacturing machinery last year, while imports of liquefied natural gas soared, helping to push up imports from the US by 15% in January-February this year, data from the Korea International Trade Association show.
Those efforts didn’t stop President Trump from insisting on renegotiating their bilateral free trade agreement.
President Trump called the deal unfair, complaining that the US deficit with Korea had doubled since it took effect in 2012. However, Seoul was granted an exemption to President Trump’s steel tariffs.
India cut its trade surplus with the US as well, by 7% in the first two months, as it took delivery of defence purchases that were part of efforts to diversify its sources of military hardware.
More than half of its current inventory is Russian-origin equipment. India’s imports of aircraft and parts from the US more than doubled in fiscal 2017 to €3.5bn, India’s Commerce Ministry data show.
That included six Lockheed Martin military transport planes, according to the state-run Press Information Bureau.
India wasn’t granted an exemption from the US tariffs on steel and aluminium although officials have said they will continue to seek one.
The continued increase in Ireland’s exports of goods and services to the US in January and February, which pushed up the trade gap by just under €6bn in the period, runs the risk of a backlash from the Trump administration.
This could mean a €36bn trade surplus for Ireland, a significant figure particularly when many European countries such as the Netherlands import more from the US than it sells to the US.
Ireland and Germany stand out as the major causes of trade imbalance.
Chancellor Angela Merkel has come in for criticism from Trump’s administration for Berlin’s large trade surplus with the US. The deficit has grown as exports to the US increased by 13% in January-February, while imports fell.
IMF managing director Christine Lagarde has also urged Germany to increase domestic spending and boost imports, warning that the build-up of large current account surpluses is partly responsible for the rise of protectionism elsewhere.
Ireland may not have the range of options Germany has to tackle the trade surplus with the US but there is a clear warning that an innovative review our trading strategy with the US is urgently needed.
John Whelan is a leading expert on international trade.
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