The US trade deficit widened to a 10-year high of $621 billion, according to Wednesday’s Census Bureau report. The trade trend defies President Trump’s pledge to reduce America’s reliance on imported goods, and he angrily shook his rhetorical fist at Fed Chairman Powell, blaming him for the strong US dollar. The President’s economic dot connections are correct.
Dollar strength encourages imports while inhibiting exports by making US dollar-based goods and services less competitive. Net goods exports tend to follow the path of the dollar with a 6-month lag. This means that unless the dollar reverses course and weakens quickly, America’s trade deficit will likely worsen.