- The Washington Times - Tuesday, February 13, 2007

Surging imports of oil, cars and all manner of goods from China sent the trade deficit soaring 6.5 percent to a fifth consecutive record of $763.6 billion last year, stoking rising anti-trade sentiment in Congress.

But the deficit at the end of the year showed signs of leveling off as oil prices stabilized and strong growth outside the United States ignited an export boom, according to a Commerce Department report yesterday. Many economists hope it was the beginning of an improving trend that will continue this year as consumer spending on imports subsides while it picks up in the rest of the world.

“It was a banner year for U.S. exports,” said Joseph Quinlan, chief investment strategist at Bank of America Corp., noting that manufactured exports surged by 14.7 percent, aerospace exports skyrocketed by 30 percent, exports to oil-producing countries jumped by 26.7 percent and exports of advanced technology products to India soared by 60 percent. The United States posted double-digit export gains to 30 out of 41 trading partners in 2006.

But the gains were overwhelmed by America’s unrelenting thirst for oil, with the cost of imported energy jumping 20 percent to $291.3 billion during the year. That barely eclipsed the $232.5 billion trade deficit with China, the largest ever recorded with any nation, and a resurgence in imports of fuel-efficient cars that raised the deficit with Japan to a new record of $88.4 billion.

The United States also crossed an ominous threshold for the first time last year, with U.S. income payments to the rest of the world exceeding foreign payments to the United States by $11 billion — a shift that could escalate pressure on the deficit in the future, Mr. Quinlan said.

“This will only act to stoke the protectionist fires on Capitol Hill,” he said. Congressional Democrats have introduced retaliatory measures ranging from repealing China’s favored trading status to imposing across-the-board tariffs on Chinese goods in an attempt to force the Asian giant to realign its undervalued currency. Many lawmakers believe lopsided trade with Asia is responsible for U.S. job losses and wage stagnation.

House Speaker Nancy Pelosi, California Democrat, called on President Bush yesterday to join Congress in forging “a fundament shift in U.S. policy” to stem the burgeoning deficit.

Treasury Secretary Henry M. Paulson Jr. has answered the surge in protectionist sentiment by intensifying trade talks with China, with the goal of increasing China’s use of U.S. financial and environmental services and gradually loosening the nation’s restrictions on the yuan. That would allow a rise against the dollar that would cheapen U.S. exports and make Chinese imports more expensive.

“The pace of appreciation should be quicker” than the glacial pace China is following, he said. But “we’re going to have a significant trade imbalance with China until we make progress on some significant structural issues.”

China, like Japan and other Asian nations, has played an important part in helping the United States finance the trade deficit by reinvesting much of its $1 trillion in export earnings in U.S. markets. But Mr. Paulson suggested China should be mindful of the rise in anti-trade sentiment in Congress.

“There’s more risk in moving too slow than too fast,” he said. “The rest of the world is only going to be patient for so long.”

The progress on the deficit seen at the end of the year hinged on subsiding oil prices, which reached a record $77 a barrel last summer but plunged to under $60 in the fall. Since then, oil prices have stabilized, but analysts said prices could pick up again this year in light of a forecast for more robust world demand by the International Energy Agency yesterday.

Of more lasting significance, economists hope, was a rare 4.7 percent decline in the deficit with the European Union prompted by strong growth in European demand for U.S. products coupled with a sharply weaker dollar.

Economists hope that a similar pickup in demand elsewhere around the world, coupled with softening consumer demand in the United Stages and a weaker dollar, will sustain and widen the trade improvement.

“What appears to be the beginning of a turnaround in the nation’s trade deficit” could be a surprise factor adding to U.S. growth this year, said John Silvia, chief economist at Wachovia Securities.

Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times is switching its third-party commenting system from Disqus to Spot.IM. You will need to either create an account with Spot.im or if you wish to use your Disqus account look under the Conversation for the link "Have a Disqus Account?". Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide