- The Washington Times - Saturday, February 17, 2007

Averaging more than $2 billion per day for the first time ever, the U.S. trade deficit totaled $764 billion last year, setting yet another record. Throughout 2006, the United States exported $1.437 trillion in goods and services. U.S. imports last year totaled $2.201 trillion. The difference was the $764 billion trade deficit. Last year was the fifth year in a row that America’s trade imbalance set a new record. It was the 31st consecutive annual trade deficit. (The last time the United States achieved a trade surplus was 1975.)

After rising 16.1 percent ($58 billion) in 2002, 17.5 percent ($74 billion) in 2003, 23.5 percent ($116 billion) in 2004 and 17.2 percent ($105 billion) in 2005, the trade deficit last year increased a modest 6.5 percent ($47 billion). At $764 billion, the 2006 trade deficit was more than $400 billion higher than the $363 billion deficit recorded in 2001. Cumulative trade deficits during the first six years of the Bush administration totaled nearly $3.4 trillion, more than three times the cumulative trade deficit ($1.1 trillion) over the previous six years (1995-2000). The national debt during the first six years of the Bush administration also increased by more than $3 trillion.

Measured as a percentage of gross domestic product (GDP), the trade deficit last year also reached another record: 5.76 percent. However, that level was only marginally higher than the 5.75 percent of GDP that prevailed in 2005. In 2000, when the U.S. economy had reached its last business-cycle peak, the trade deficit was 3.85 percent of GDP.

The overall $764 billion trade deficit in goods and services represented the difference between a goods deficit ($836 billion) and a surplus in services ($72 billion). The United States exported $1.024 trillion in goods last year and imported $1.86 trillion in goods, resulting in the goods deficit of $836 billion. U.S. service exports totaled $414 billion, and service imports were $342 billion, yielding the surplus in services of $72 billion.

The trade deficit in goods increased by 6.8 percent last year despite the fact that U.S. goods exports jumped by 14.4 percent and U.S. goods imports increased by 10.9 percent. That is because U.S. goods imports in 2005 ($1.677 trillion) exceeded its goods exports in 2005 ($894 billion) by 88 percent. Analogously, even though total U.S. exports (goods and services) increased by 12.8 percent last year and total U.S. imports increased by only 10.5 percent, the trade deficit still rose by 6.5 percent ($47 billion). Again, that’s because the United States imported 56 percent more goods and services than it exported in 2005.

Measured against the currencies of America’s trading partners, the foreign-exchange value of the dollar reached its cyclical peak in 2002 (according to an inflation-adjusted broad index of currencies compiled by the Federal Reserve). In 2006, the value of the dollar was nearly 13 percent less than its 2002 value. A declining dollar tends to make U.S. exports cheaper and U.S. imports more expensive; eventually, the trade deficit should improve. Despite the dollar’s generally downward trend over the past four years, however, the trade deficit still increased more than 80 percent.

One reason the U.S. trade deficit has not yet turned the corner in the wake of a declining currency is due to America’s insatiable appetite for imported petroleum. The United States spent $303 billion importing petroleum products in 2006. That was $50 billion more than in 2005; it was $200 billion more than in 2001 and 2002; and it was nearly $250 billion more than the average annual petroleum import bill ($59 billion) during the 1990s. According to a slightly different database, the United States imported 4.9 billion barrels of petroleum products, including crude oil, gasoline, fuel oil, etc. That represented 13.4 million barrels per day. (Each barrel contains 42 gallons.) The average price per barrel of imported petroleum products was $60 in 2006 compared to less than $49 the year before.

Once again the largest bilateral trade deficit in goods ($232.5 billion) occurred with China. Since 1999, the annual trade deficit with China has increased by $150 billion. The next largest was the $88.4 billion goods deficit with Japan, which exported more than $60 billion in motor vehicles and parts to the United States last year and imported $2.3 billion from us, including less than $500 million worth of cars. Trade last year with our NAFTA partners of Canada and Mexico generated goods deficits of $72.8 billion and $64.1 billion, respectively. With Germany and Italy, our NATO allies who are essentially refusing to increase in any significant way their military forces in Afghanistan, America recorded trade deficits last year of $47.8 billion and $20.1 billion, respectively. Our deficit with France was $12.9 billion. Last but not least, we added nearly $25 billion more to the coffers of Saudi Arabia, financing who knows how many Wahhabi-style madrassas in the powder-keg nation of Pakistan.

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