The U.S. logged a $502.25 billion trade deficit in 2016, the largest in four years and a gap President Donald Trump is setting out to narrow to bolster the U.S. economy.

The new president faces obstacles in the coming months and years, including the potential for a stronger dollar, larger federal budget deficits and low national saving rates compared with much of the rest of the world, all of which could force trade deficits to widen.

As in past years, the 2016 gap reported Tuesday by the Commerce Department reflected a large deficit for U.S. trade in goods with other countries, offset in part by a trade surplus for services. The gap in terms of goods only was $347 billion with China last year, $69 billion with Japan, $65 billion with Germany and $63 billion with Mexico.


In 2016, the total deficit rose modestly from the prior year to its highest dollar level since 2012. But it shrank slightly to 2.7% as a share of U.S. economic output after hovering at 2.8% of gross domestic product in 2013 through 2015.

The gap fundamentally reflects the fact that Americans consume more than they produce relative to the rest of the world. To shrink the gap, they would either have to produce more or consume less.

If Americans consumed less, the deficit could contract along with the broader economy, as happened during the 2001 and 2007-2009 recessions, leaving workers no better off. To produce more, U.S. firms could export more or take market share from imports. Tariffs could help that happen, but other countries might retaliate.


"We may be now seeing a return of the `twin deficits' that we saw in the 1980s and the 2000s," said Harvard University economist Jeffrey Frankel, a former member of the White House Council of Economic Advisers under President Bill Clinton.

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