The U.S. trade deficit hit the highest level in nine years in 2017, defying President Donald Trump’s efforts to bring more balance to America’s trade relationships.

 

The Commerce Department said Tuesday that the trade gap in goods and services rose to $566 billion last year, the highest level since $708.7 billion in 2008. Imports set a record $2.9 trillion, swamping exports of $2.3 trillion.

 

The U.S. ran an $810 billion deficit in the trade of goods and a $244 billion surplus in services such as banking and education.

 

The goods deficit with China hit a record $375.2 billion in 2017, and the goods gap with Mexico rose to $71.1 billion. Trump has sought to reduce the deficits with China and Mexico. His administration is weighing whether to impose trade sanctions on China for the theft of U.S. intellectual property. It is also renegotiating the North American Free Trade Agreement with Mexico and Canada.

 

The overall December trade deficit in goods and services rose to $53.1 billion, up from $50.4 billion in November and highest since October 2008.

 

Countries run trade deficits when they buy more from other countries than they sell.

 

Trump sees trade deficits as a sign of economic weakness and largely as the result of unfair competition by America’s trading partners. Most economists see them largely as the result of bigger economic forces: Americans spend more than they produce, and imports fill the gap.

 
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Mercedes-Benz issued an apology in China on Tuesday for quoting the Dalai Lama, the Tibetan spiritual leader who is reviled by Beijing, on social media abroad in a reflection of foreign companies’ heightened sensitivity to the Communist government’s possible reaction to their global activities.

The apology follows official criticism last month of hotel operator Marriott, fashion brand Zara and other companies that were ordered by Chinese regulators to apologize for calling self-ruled Taiwan and Hong Kong countries on websites or promotional material.

The Dalai Lama quote — “Look at situations from all angles, and you will become more open” — appeared Monday on Mercedes’s account on Instagram, one of a number of foreign social media services Beijing tries to prevent China’s public from seeing. Chinese web surfers with access to technology that allows them to see past the filters copied it onto domestic social media.

 

In a statement on its Chinese social media account, the unit of Daimler AG did not mention the Dalai Lama but apologized for “wrong information” that “hurt the feelings of Chinese people.”

 

A Daimler spokeswoman in Beijing, Simonette Illi, said the company acted at its own initiative. She said to her knowledge, the company had not heard from Chinese authorities about the quote.

 

The company statement promised to “take concrete action to deepen our understanding, including colleagues abroad, of Chinese culture and values.”

 

Asked whether that meant Mercedes’ global marketing would be designed with official Chinese sentiments in mind, Illi said, “What we are striving for is that, as we are a globally active company, we establish an understanding for cultural tolerance.”

 

Global companies look to China to drive revenue and increasingly design autos, consumer electronics and other products and services sold worldwide to appeal to Chinese consumers.

 

Beijing rejects accusations of human rights and other abuses as improper interference in its affairs but is increasingly assertive about demanding other governments enforce its political positions in their own countries.

 

Tibet is especially sensitive for Beijing — one of a handful of “core interests” over which Chinese leaders say they would go to war.

 

In the case of Marriott, the official Xinhua News Agency cited a company executive as saying an employee abroad who “liked” a posting on Twitter citing the Tibet mention would be fired.

 

Twitter also cannot be seen by Chinese web surfers without technology to evade Beijing’s filters, though Xinhua and other official entities use the service to spread the ruling Communist Party’s views abroad.

 

Beijing accuses the Dalai Lama of leading a movement that wants to split Tibet from China. He says he only wants autonomy and to protect the region’s distinctive Buddhist culture.

 

Communist troops invaded the isolated Himalayan territory in 1950. The Dalai Lama fled into exile in India in 1959 following a failed uprising. He stepped down in 2011 as political leader of Tibetan exiles but remained a Buddhist spiritual leader.

 

In November, a Chinese soccer team that was to play in Germany walked off the field in Mainz after people in the stands unfurled a Tibetan flag.

 

The Chinese team returned to the field for that match following a 25-minute delay. The rest of their games were suspended after German officials said they could not grant a Chinese demand to prohibit demonstrations.

 

 
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Venezuela’s central bank on Monday announced a devaluation of more than 99 percent of its official exchange rate with a new foreign exchange platform.

The central bank said the first auction of its new DICOM system yielded an exchange rate of 30,987.5 bolivars per euro, equivalent to around 25,000 per dollar.

That is a devaluation of 86.6 percent with respect to the previous DICOM rate and 99.6 percent from the subsidized rate of 10 bolivars per dollar, which was eliminated last week.

The new rate is still dwarfed by the black market rate for greenbacks, currently at 228,000 bolivars per dollar according to website DolarToday, which is used as a reference.

Venezuela is undergoing a major crisis, with quadruple-digit inflation and shortages of food and medicine. Economists consistently describe the 15-year-old currency control system as the principal obstacle to functioning commerce and industry.

 
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U.S. President Donald Trump’s tax reform could bring almost $2 trillion back to the United States as U.S. firms repatriate cash piles from foreign affiliates, a U.N. report said Monday.

Ending the incentive to hoard cash overseas could produce a stimulus effect in the United States, and Trump has credited the tax reform with spurring a $350 billion investment plan by Apple.

“Now is the perfect time to bring your business, your jobs, and your investments to the United States of America,” Trump told the World Economic Forum in Davos last month.

The reform ends a system whereby companies defer tax on foreign earnings until the funds are repatriated. Instead it treats those earnings as if they were being repatriated, with an 8 percent tax on non-cash assets and a 15.5 percent tax on cash.

“This measure is widely expected to have the most significant and immediate effect on global investment patterns,” said the report by the U.N. trade and development agency UNCTAD.

Big firms had long awaited such a tax break, having last received one in the 2005 U.S. Homeland Investment Act, which brought $300 billion back from abroad, the report said.

Since then, U.S. overseas retained earnings have grown to $3.2 trillion, half of U.S.-owned foreign direct investment, with about $2 trillion in cash. Unlike in 2005, companies are not required to actually repatriate the funds.

The biggest overseas cash hoarders are in the tech sector, with Apple, Microsoft, Cisco, Alphabet and Oracle holding $530 billion, a quarter of the total, the report said. Other major cash holders are in pharmaceuticals and engineering.

Almost 40 percent of the funds are located in the United Kingdom or its Caribbean offshore territories such as the British Virgin Islands, UNCTAD said, citing data from the Bureau of Economic Analysis.

Even if the money was not invested in tangible assets, its withdrawal could still have a macroeconomic impact, said Richard Bolwijn, UNCTAD’s head of investment research.

“It’s still a part of … the external sources of finance helping to make up for savings shortfalls in developing countries,” he said.

Much of the impact depends on how other countries react, and there is still uncertainty as the details of the tax bill are clarified. In addition, there are some concerns that the U.S. reforms could violate tax treaties and trade rules, the UNCTAD report said.
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U.S. stocks plunged in highly volatile trading on Monday, with both the S&P 500 and Dow Industrials indices slumping more than 4.0 percent, as the Dow notched its biggest intraday decline in history with a nearly 1,600-point drop and Wall Street erased its gains for the year.

The declines for the benchmark S&P500 index and the Dow Jones Industrial Average were the biggest single-day percentage drops since August 2011, a period of stock-market volatility marked by the downgrade of the United States’ credit rating and the eurozone debt crisis, as a pullback from record highs deepened.

The question now for investors, who have ridden a nearly nine-year bull run, is whether this is the long-awaited pullback that paves the way for stocks to again keep rising after finding some value, or the start of a decline that leads to a bear market.

“A lot of people who have been in this market for the past three or four years have never seen this before,” said Dennis Dick, a proprietary trader at Bright Trading LLC in Las Vegas.

“The psychology of the market changed today. It’ll take a while to get that psychology back.”

Bulls argue that strong U.S. corporate earnings, including a boost from the Trump administration’s tax cuts, will ultimately support market valuations. Bears, including short sellers that bet on the market decline, say that the market is over-stretched in the context of rising bond yields as central banks withdraw their easy money policies of recent years.

The U.S. stock market has climbed to record peaks since President Donald Trump’s election, on the prospect of tax cuts, corporate deregulation and infrastructure spending, and it remains up 23.8 percent since his victory. Trump has frequently taken credit for the rise of the stock market during his presidency, though the rally and economic recovery began during the Obama administration.

As the stock market fell on Monday, the White House said the fundamentals of the U.S. economy are strong. U.S. economic growth was running at a 2.6 annualized rate in the fourth quarter last year and the unemployment rate is at a 17-year low of 4.1 percent.

On Monday, the financial, health care and industrial sectors fell the most, but declines were spread broadly as all major 11 S&P sectors dropped at least 1.7 percent. All 30 of the blue-chip Dow industrial components finished negative.

With Monday’s declines, the S&P 500 erased its gains for 2018 and is now down 0.9 percent in 2018. The Dow is down 1.5 percent for the year.

The market’s pullback comes amid concerns about rising bond yields and higher inflation which were heightened following Friday’s January U.S. jobs report that also prompted worries that the Federal Reserve will raise rates at a faster pace than expected this year.

“The market has had an incredible run,” said Michael O’Rourke, chief market strategist At JonesTrading In Greenwich, Connecticut.

“We have an environment where interest rates are rising. We have a stronger economy so the Fed should continue to tighten … You’re seeing real changes occur and different investments are adjusting to that,” O’Rourke said.

The Dow Jones Industrial Average fell 1,175.21 points, or 4.6 percent, to 24,345.75, the S&P 500 lost 113.19 points, or 4.10 percent, to 2,648.94 and the Nasdaq Composite dropped 273.42 points, or 3.78 percent, to 6,967.53.

The S&P 500 ended 7.8 percent down from its record high on Jan. 26, with the Dow down 8.5 percent over that time. The declines come after the Dow and S&P posted their biggest weekly percentage drops since January 2016, and the Nasdaq posted its biggest weekly drop since February 2016.

Even with the sharp declines, stocks finished above their lows touched during the session.

At one point, the Dow fell 6.3 percent or 1,597 points, the biggest one-day points loss ever, as it fell through both the 25,000 and 24,000 levels during trading. Traders speculated that the breaching of technical levels prompted a frenzy of automated selling.

“It doesn’t look like people are working their orders — the programs are trading this,” Dan Ryan, who works on the New York Stock Exchange floor for E&J Securities, said as he was leaving work for the day.

Investors also unloaded riskier corporate bonds during the Wall Street rout. Exchange-traded funds that focus on junk bonds suffered a third day of losses. BlackRock’s iShares iBoxx High Yield Corporate Bond ETF, which has about $16 billion in assets, fell 0.6 percent to its lowest share price since December 2016.

The CBOE Volatility index, the closely followed measure of expected near-term stock market volatility, jumped 20 points to 30.71, its highest level since August 2015.

“One thing is that going into the last week or so, investor bullishness was in the top decile of its historical range, which suggests that investors were pretty optimistic, with high expectations and largely complacent,” said Jack Ablin, chief investment officer with Cresset Wealth Advisors in Chicago. “There’s kind of an emotional reversal that’s going on.”

About 11.5 billion shares changed hands in U.S. exchanges, well above the 7.6 billion daily average over the last 20 sessions.

Declining issues outnumbered advancing ones on the NYSE by a 8.64-to-1 ratio; on Nasdaq, a 6.92-to-1 ratio favored decliners.

The S&P 500 posted 1 new 52-week highs and 38 new lows; the Nasdaq Composite recorded 17 new highs and 164 new lows.
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Recent losses on global financial markets, including those in the U.S., have some investors concerned about expectations for their holdings and plans for the future.

The Dow Jones Industrial Average declined 2.5 percent Friday, its largest percentage drop since Britain’s decision in June 2016 to leave the European Union.

The Dow and the broader U.S. Standard & Poor’s 500 Index ended the week roughly 4-percent lower, their biggest weekly drops since early 2016, amid fears of inflation and disappointing quarterly corporate earnings results.

Key stock indexes in Europe also fell Friday. Germany’s DAX index dropped 1.7-percent, while France’s CAC 40 Index declined 1.6-percent.

In Asia, Japan’s Nikkei 225 Index slid nearly 1-percent and South Korea’s Kospi fell 1.7-percent.

Meanwhile, U.S. bond yields climbed and contributed to the sell-off after the U.S. government reported that wages grew last month at their fastest pace in eight years.

The wage data helped stoke investor concern that the Federal Reserve, the U.S. central bank, will respond to higher inflation by hiking its key interest rate more quickly than anticipated.

Darrell Cronk, head of the Wells Fargo Investment Institute, said an extended period of low interest rates has helped create the uncertainty.

“We’ve enjoyed low interest rates for so long, we’re having to deal with a little bit higher rates now, so the market is trying to figure out what that could mean for inflation.”

The yield on the benchmark 10-year U.S. Treasury notes rose to 2.852-percent, its highest level in more than four years. The rise in bond yields hinders stock performance in two ways: it makes corporate borrowing more expensive and it makes bonds more attractive to investors compared to riskier stocks.

Bond strategists were unwilling Friday to predict what lies ahead for interest rates this week after the markets’ unusual volatility in the past week.

Investors may get a hint of the direction of interest rates when trading resumes in Asia early Monday, and possibly more insight after the U.S. Treasury’s $66 billion in auctions of 3-, 10- and 30-year bonds from Tuesday to Thursday.
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