Economists don't like to dwell too much on the US trade balance. It is, by and large, an accounting measure that often moves in directions inverse to the health of the economy. The US trade deficit's biggest contraction on record came in 2009 when it shrank by more than $US300 billion in a single year as a result of the recession then under way – and the resulting collapse in US demand for imported goods. "This is a major reason why economists say, 'You really don't want this as your scorecard'," said Phil Levy, a former senior economist for trade with President George W. Bush's Council of Economic Advisers. "It's not an accident. When things are booming we consume more imports." Despite the name, trade deficits tend to have less to do with trade policy than broader macroeconomic policy.

Driving the deficit The main long-term driver of persistent trade deficits since 1975 has been the gap between the US' low savings rate and its attractiveness as an investment destination, fuelled partly by the US dollar's role as the world's reserve currency. Loading That in turn leads to a stronger greenback, which in itself helps increase the trade deficit by lowering the real cost of imports and increasing the local-currency cost of American goods in overseas markets. In the first 11 months of 2018 the US deficit in goods and services with the world increased $US52 billion, or about 10 per cent, from the same period in 2017. If that pattern holds in the December data released on Wednesday – and economists surveyed by Bloomberg predict it will – the deficit will have widened to about $US610 billion in 2018. In 2016 it was $US502 billion.

The immediate drivers of the surge in the trade deficit under Trump have been the fiscal expansion resulting from the tax cuts he pushed through Congress and the stronger US dollar that resulted, partly from the juiced economy that expansion helped create. Trump's supporters insist he's tackling that via his trade negotiations with China and other US trading partners. They also point to his renegotiation of Nafta as something that will help reduce the US trade deficit in the long run. Tariff war hits back But Trump's trade policy also contributed materially to the growth of the trade deficit in 2018. The tariffs he threatened and then imposed on Chinese imports caused a rush by importers to get ahead of the new duties that fuelled an increase in incoming traffic at West Coast ports last year. The retaliatory tariffs Trump provoked from China also hit major US agricultural exports such as soybeans.

Moreover, his attacks and threats to impose tariffs on trading partners from China to the European Union has also contributed to the slowdown in those economies and therefore their demand for American goods. Trump and his supporters have cast the blame in part on the Federal Reserve, arguing that its decisions to hike rates last year contributed to the strengthening of the US dollar. Trump has complained that a stronger dollar has weakened his hand in his trade wars and put a damper on growth. Trump argues the stronger US dollar has hindered growth. Credit:Bloomberg But advocates of a stronger US currency policy argue that Trump himself carries plenty of blame. Robert Scott, senior economist at the left-leaning Economic Policy Institute, said Trump's failure to tackle what he sees as a global misalignment in currencies that requires a depreciation of the US dollar has been the main cause of a rising trade deficit.

Even Trump's attempts to deal with currency issues in trade negotiations with China – or his public complaints about a strong dollar – seem unlikely to change anything. The strong US dollar matters because it has led to near-record deficits in manufactured goods and non-oil goods that are being masked by increases in exports of oil and services, Scott said. To his mind that means the US' trade balance is worse than even the official data reflects. "There's a lot going on below the surface here,'' he said. Bloomberg