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.
Mr. Engler said he also expects U.S. exports, which are dominated by manufactured goods, to take off this year as the full effect of the dollar’s drop against the euro, Canadian dollar and other floating currencies sets in.
Peter Morici, business professor at the University of Maryland, said the U.S. problem is not only with China, but with developing countries in general. While the dollar has dropped substantially against the currencies of major trading partners in Japan and Europe, it is up 3 percent against the currencies of developing countries.
Mr. Morici said the administration should have used the meeting of the Group of Seven finance ministers in London last week to make progress against China’s currency manipulation, which has been condemned by the other G-7 nations as well.
“By ignoring the trade deficit, the administration fails to address the single most important tax on U.S. growth,” he said.
Treasury Secretary John W. Snow told Congress yesterday that he believes China is taking steps toward adopting a more flexible currency.
But a big part of the problem, he said, is anemic growth in U.S. export markets. “It sure would be helpful if Japan and our other trading partners would grow faster.”
Congressional Democrats jumped on the trade report as evidence of the administration’s failure to get a handle on America’s most crippling economic problem.
Sen. Byron Dorgan, of North Dakota, Sen. Hillary Rodham Clinton of New York, and Rep. Benjamin L. Cardin of Maryland introduced legislation that would require the president to come up with an emergency plan of action any time the trade deficit exceeded 5 percent of the GDP.
“I am tired of watching ships arrive at the Port of Baltimore filled with cargo for U.S. consumers and then leave empty,” Mr. Cardin said. “We cannot allow a trade deficit of this magnitude to continue; it is causing irreparable harm to American workers, farmers and businesses.”
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