U.S. trade deficit reached record $618 billion in ‘04

The U.S. trade deficit rose 24 percent to a record high of $618 billion last year as Americans indulged their appetite for foreign goods, from crude oil to computers and cars.

Despite a substantially weaker dollar, which makes U.S. products cheaper overseas, a deficit emerged for the first time in farm goods after 50 years of surpluses, according to yesterday’s Commerce Department trade report.

The U.S. edge in advanced technology products disappeared two years ago, and analysts forecast that at the current rate, many remaining U.S. strong points in trade — including banking and legal services — also soon will be toppled and succumb to the burgeoning deficit.

“They’re dismal figures,” said National Association of Manufacturers President John Engler. “It’s a cruel world out there” for U.S. manufacturers and workers, who lost 2.7 million jobs during the recession largely because of the bloated trade deficit.

Mr. Engler leveled a finger at China in a speech at the National Press Club, contending that unfair trade practices have enabled the Asian giant’s trade surplus with the United States to swell to $162 billion last year — more than twice the level of the deficit with any other country.

“We will lose a lot more to China if this isn’t stopped,” he said, contending China’s currency is 40 percent overvalued because the nation fixes the yuan against the dollar to keep its products cheap in the American market.

“This is creating financial problems all over the world,” he said. “We don’t presume to tell the administration what to do and how to get it done, but they must do something and soon. … If we stand idle, we’ll be left behind.”

The U.S. Treasury has been prodding China to stop fixing its currency, but Chinese officials indicate they are in no hurry to change. Mr. Engler said a more confrontational approach may be needed to force China to redress U.S. grievances.

The widening trade deficit has worried financial markets since it started accelerating last year to 5.3 percent of U.S. economic output. Because the deficit must be financed entirely with borrowing from overseas, financial analysts consider the 5 percent threshold a danger point — one that few countries have exceeded without serious consequences to their economies.

While the trade picture was bleak for the full year, a ray of hope emerged in December with a 5 percent drop in the monthly deficit from November’s record high of $59.3 billion.

Most of the improvement resulted from a drop in oil imports, which exploded during the fall as U.S. production in the Gulf of Mexico temporarily was halted after Hurricane Ivan.

Financial markets and many analysts took encouragement from the year-end improvement, hoping that it signals the leveling out of the deficit forecast by Federal Reserve Chairman Alan Greenspan last week.

The Dow Jones Industrial Average surged 86 points to 10,750, its highest level of the year, boosted as well by a report showing the lowest first-time claims for jobless benefits in four years.

“The good news is that we’re moving, albeit slowly, in the right direction and there are signs of further improvement on the horizon,” said Oscar Gonzalez, an economist with John Hancock Financial Services.

He noted that exports rose by 11.2 percent to more than $100 billion for the first time — a sign that the dollar’s 27 percent drop against other major currencies since 2001 is starting to bring an improvement.

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