Following the move this week to impose tariffs on imports of steel and aluminium, the widening in the trade deficit to a nine-year high in January is likely to have bolstered President Donald Trump’s protectionist instincts. The rise in the deficit has been driven mainly by a surge in consumer goods imports from China, which may partly reflect a distortion linked to the Lunar New Year Holiday. Regardless, net trade is on course to subtract from GDP growth for the second quarter in a row.
We don’t expect that drag to last, and there are good reasons to expect export growth to pick up over the coming months. Following the big fiscal stimulus agreed by Congress, however, there is a risk that the trade deficit widens further over the next couple of years. In that scenario, Trump’s demands for protectionist policies would continue to grow.
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