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U.S. trade deficit hits all-time high

SHARE U.S. trade deficit hits all-time high

Deseret Morning News graphic

WASHINGTON — The U.S. trade deficit set a record for a fifth straight year, and the imbalance with China soared to an all-time high as well.

The Bush administration pledged to keep pursuing its free-trade policies, while Democrats now in control in Congress demanded a change in course.

The gap between what the U.S. sells abroad and what it imports rose to a record $763.6 billion last year, up 6.5 percent from the previous record of $716.7 billion in 2005, the Commerce Department reported Tuesday.

For December, the deficit jumped a bigger-than-expected 5.3 percent to $61.2 billion.

Bush administration officials said the wider deficits were primarily a factor of faster growth in the United States and warned against pursuing policies that would erect protectionist trade barriers in this country.

"Our focus is on growing our exports, growing our economy, reducing our unemployment and keeping inflation in check," Commerce Secretary Carlos Gutierrez said in an interview from New Delhi, India.

Treasury Secretary Henry Paulson announced that he was naming Alan F. Holmer, a pharmaceutical company executive and a former trade official during the Reagan administration, to be his deputy in charge of a new high-level strategic dialogue with China that he instituted in December.

Paulson said the next meetings would be on May 23 and 24 in Washington and that he was in frequent contact with the head of the Chinese delegation, Vice Chairman Wu Yi, in an effort to achieve results to lessen trade tensions.

House Speaker Nancy Pelosi and 13 other top House Democrats sent Bush a letter saying the new trade figures underscored the urgency for a course change on trade.

"The consequences of these persistent and massive trade deficits include not only failed businesses, displaced workers, lower real wages and rising inequality, but also permanent devastation of our communities," the Democrats said.

They noted that more than 3 million manufacturing jobs have been lost since Bush took office, with about one-third of those losses attributed to the rising deficit in manufactured goods.

The Democrats urged Bush to pursue more cases against unfair trade practices including a challenge before the World Trade Organization against the currency practices of both China and Japan.

U.S. manufacturers contend the yuan is undervalued by as much as 40 percent, making Chinese goods cheaper in the United States and U.S. products more expensive in China. American automakers have also alleged that Japan is unfairly manipulating the value of the yen to boost sales of Japanese cars.

The new trade report showed that the deficit with China shot up 15.4 percent last year to total $232.5 billion, the largest imbalance ever recorded with any country. China surpassed Japan as the country with the largest trade gap with the United States in 2000 and has held the top spot since that time.

On Wall Street, stocks surged Tuesday, pushed higher by hopes for a pickup in takeover activity fueled by a report that two companies are trying to buy Alcoa Inc. The Dow Jones industrial average had its biggest one-day jump since Dec. 27, rising 102.30 points to close at 12,654.85.

Private economists said the worst may be over for the trade deficit, forecasting that the trade gap will actually decline this year as lower energy prices slow the growth of imports and a weaker dollar against many major currencies helps boost exports.

"The bad news is that the deficit with China will continue to widen," said Mark Zandi, chief economist at Moody's Economy.com. He predicted that China will only allow its currency to rise in value by about 5 percent annually over the next few years, not enough to stop the U.S.-China trade gap from rising.

The biggest factor in last year's increase was a surge in the U.S. foreign oil bill, which rose to a record $302.5 billion as the average price of a barrel of crude oil rose to an annual high of $58, reflecting a big jump last summer that pushed oil briefly above $77 per barrel.

Total exports of goods and services jumped 12.8 percent last year to an all-time high of $1.44 trillion. Imports, however, also set a record, rising by 10.4 percent to an all-time high of $2.20 trillion.

In addition to China, other countries which set record trade gaps with the United States last year were Japan, an imbalance of $88.4 billion, and Mexico, at $64.1 billion.

On the Net: Trade report: www.census.gov/ft900