Trade with China keeps widening gap for U.S.

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The trade deficit jumped 17 percent to a record $489 billion last year, propelled by an explosion in trade with China.

America's $124 billion deficit with China is now twice its trade gap with Japan, three times its deficit with Mexico, and substantially above its $100 billion deficit with all of Western Europe.

But U.S. exports to China also are rising rapidly, and its exports to the rest of the world grew for the first time in three years last year, in large part due to the weakness of the dollar.

Jay Bryson, global economist at Wachovia Securities, sees signs that the overall trade deficit has peaked and will start to gradually improve as a result of the dollar's decline, even if the deficit with China keeps soaring.

"Turning the trade deficit around is like trying to turn an aircraft carrier around. It will take time," he said. "By the middle of the year you will start to see smaller deficits as growth in exports outstrips growth in imports."

Exports grew by 4.5 percent last year, led by a 10 percent surge in exports of capital goods such as airplanes and heavy machinery during the fourth quarter.

Meanwhile, imports of autos and other consumer goods decelerated during the year both as a result of rising import prices -- which increased by 1.9 percent -- and apparently exhausted American consumers who may be tapped out after a record auto-buying binge in recent years.

With growth picking up overseas, Mr. Bryson expects U.S. exports to surge by 12 percent or more this year as U.S. companies capitalize on the renewed price competitiveness caused by the dollar's 15 percent decline against other world currencies.

Trade with China, which has multiplied tenfold since 1990, has not been affected by the dollar's decline because China fixes its currency against the dollar -- giving it a substantial advantage over other U.S. trading partners.