For all the time and effort that U.S. President Donald Trump has put into renegotiating trade deals with China and other major exporters, his best chance of meaningfully reducing the deficit may be a recession.
The past two years have seen the U.S. trade deficit surge, reaching nearly $60 billion in December 2018, the highest monthly figure in a decade, as the economy continued a strong run of growth that started in the months following the depths of the financial crisis.
The last time the trade deficit was this high, in October 2008, things looked a lot different. The economy was entering the deepest part of the Great Recession, which would soon swallow most of the trade deficit as demand for imported goods dried up. The U.S. shale oil and gas revolution was in its infancy, and oil exports were still outlawed.
The different landscape shows up in the trade numbers. The U.S. deficit with trading partners that are members of OPEC fell 98%, from $14 billion in October 2008 to just $305 million in December 2018, the latest Census Bureau trade figures available, as the U.S. became the world's largest crude oil producer, overtaking Russia and Saudi Arabia.
U.S. consumers' appetite for Chinese goods only grew over the decade from peak deficit to peak deficit, with the $36.8 billion monthly shortfall with China representing more than 60% of the overall U.S. trade gap, compared to less than half in October 2008.
A major issue the Trump administration faces if it wants to seriously tackle the overall trade deficit or the bilateral one with China is that strong economies spur demand for foreign goods. December's $200.2 billion of non-petroleum imports were the highest on record.
"I do think the Trump administration has created a problem for themselves by focusing on the bilateral deficit" with China, said David Dollar, a senior fellow at the Brookings Institution. "If the U.S. went into recession, kind of worst-case-scenario, you would normally expect that to lead to a reduction in the trade deficit ... with all our partners."