- The Washington Times - Thursday, February 22, 2001

The U.S. trade deficit declined for the third straight month, even as the yearly gap surged to a record high of $369.7 billion, the Commerce Department reported yesterday.
And, in a long-anticipated development, China overtook perennial front-runner Japan as the country with the largest trade gap with the United States, the agency said.
Last year's deficit smashed the previous high of a $265 billion in 1999, despite the three-month decline, which came about as slower economic growth in the United States late in the year cut demand for imports.
Still, the news stirred little new reaction among economists, Wall Street or politicians, since large deficits have been part of the economic landscape for years, and economists disagreed as to their long-term impact.
"These numbers don't come as a surprise," said Willard Workman, vice president for international affairs at the U.S. Chamber of Commerce. "As long as we have a healthy appetite for imports, we're going to have a trade deficit."
The trade deficit has hit record levels over the past three years as the fast-growing U.S. economy, with consumers flush with cash and credit, became a magnet for imports.
Simultaneously, economists point out, many export markets in Asia are still struggling to recover from catastrophic economic crises in 1997, and growth in Europe has remained well below U.S. levels.
In addition, the strong U.S. dollar has kept imports cheap and attractive, while making U.S. exports more expensive, according to Dave Huether, an economist with the National Association of Manufacturers.
The American trade deficit with China, which grew 22 percent last year to $83.8 billion, has risen sharply this past year because Chinese suppliers were well-placed to meet the demand in the United States.
China was long known for producing cheap consumer goods, such as apparel, toys and footwear. In the 1990s, it also developed into a low-cost manufacturer of higher-value components for computers and telecommunications equipment.
At the same time, the United States embarked on an investment boom as companies integrated information technology into their businesses and dramatically improved productivity. The result has been a rising trade imbalance between the two countries.
"China started making [these] products just as the United States developed a voracious appetite for them," Mr. Huether said.
By contrast, the deficit with Japan, though it still reached a record $81.3 billion, has not risen as quickly. Many Japanese firms also have set up production in the United States, a move that boosts U.S. exports, not imports, Mr. Huether pointed out.
Mr. Workman expressed the hope that American companies will be able to export more to China once the Asian giant joins the World Trade Organization and implements a landmark trade agreement that will cut duties on U.S. products.
Congress approved the pact last fall, and China is expected to accede to the WTO sometime this year.
Despite the rising deficit, and comments last year by Federal Reserve Chairman Alan Greenspan that the trade gap may not be sustainable, policy-makers have not been able to agree on whether it represents a serious threat to U.S. economic growth. A bipartisan commission formed by Congress to examine this issue split its verdict last year.
Economists frequently have pointed out that the trade deficit as a percentage of gross domestic product is only now exceeding levels it reached in the mid-1980s. Yet it did not trigger a crisis during that period.
U.S. exports, propelled by strong demand abroad for farm products, autos and industrial materials, rose by 11.7 percent to $1.07 trillion, topping the $1 trillion mark for the first time. But imports increased 17.8 percent to $1.44 trillion, driven in part by a rising foreign-oil bill, the Commerce Department said.
America's deficit with its biggest trading partner, Canada, climbed to a record $50.4 billion, while the trade gap with Mexico, the other partner in the North American Free Trade Agreement, rose to a record $24.2 billion. The deficit with Western Europe hit a record $59.8 billion.
The December deficit hit $33.0 billion, compared to $33.1 billion in November and $33.6 billion in October, all down from the all-time monthly high of $33.8 billion set in September. Yesterday's report marked the first time the trade deficit has improved for three straight months since mid-1995.

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