US Trade Deficit Sets Record High
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By VIKAS BAJAJ
The
Hitting its fourth consecutive annual record, the gap between exports and imports reached almost twice the level of 2001. It was driven by strong consumer demand for foreign goods and soaring energy prices that added tens of billions of dollars to the nation's bill for imported oil. The nation last had a trade surplus, of $12.4 billion, in 1975.
The continued growth in the trade deficit, particularly with
But as long as the American economy is growing faster than most of its trading partners and energy prices stay at elevated levels, economists expect little improvement, and perhaps even a slight widening, in the trade imbalance this year.
"You would need a dramatic slowdown in domestic
That means the nation will go deeper into debt with the rest of the world as Americans continue to rely on the strong flow of foreign money, particularly from central banks in
As a result, American consumers are able to spend more and save less.
Many economists say this situation is unsustainable over the long run, arguing that the
"There are certainly going to be inflows, the question is at what price?" said James O'Sullivan, an economist at UBS, an investment house. "As time goes on, it will become a little more difficult to attract foreign funds. That's another way of saying the dollar will fall."
But other economists argue that the huge trade gap mostly reflects stronger American growth and that money is flowing into the country at relatively low rates because of the attractiveness of the
"As long as foreigners are willing to put their capital in the United States, we can sustain a trade deficit of 6 percent or more" of overall economic activity, said Phillip L. Swagel, a resident scholar at the American Enterprise Institute in Washington who served as a staff economist for President Bush's Council of Economic Advisers.
"It would be better that we saved more on our own," Mr. Swagel added, "but given that we aren't, I would rather have investment go on by foreign capital."
For its part, the Bush administration urged caution on the deficit.
Commerce Secretary Carlos M. Gutierrez, touring an I.B.M. operation in
As a share of the gross domestic product, the trade gap increased to 5.8 percent, from 5.3 percent in 2004 and 4.5 percent in 2003.
While most economists dismiss the importance of bilateral trade imbalances, it is the deficit with
Following increased pressure from the White House, the Chinese government allowed the yuan to rise by about 2 percent in July and allowed its currency to float in a narrow band. Since then the yuan, also known as the renminbi, has risen by an additional 0.7 percent. One dollar buys about 8.0505 yuan.
A stronger Chinese currency would make imports to the
In the Senate, Charles E. Schumer, Democrat of New York, and Lindsey Graham, Republican of South Carolina, have proposed imposing a 27.5 percent tariff on Chinese imports if the country does not allow its currency to appreciate further against the dollar. Late last year, the senators agreed to hold off on the measure after the Senate voted against stopping a floor vote on it.
Mr. Schumer said "there is a very strong likelihood that we will move our bill in March should the Chinese not show further movements."
"If you believe in free trade, you play by the rules," he said when asked if a protectionist tariff would hurt the American economy. "The long-term damage of the Chinese pegging their currency far exceeds any immediate benefits and almost every economist would agree with that. They might not agree with our methodology."
Experts note that a large portion of the deficit with
Bush administration officials have said they, too, would like to see the yuan appreciate further, but have contended that sanctions like a tariff would be counterproductive and would hurt consumers. This month, the Treasury Department urged the International Monetary Fund to improve its policing of currency manipulations by governments, without directly referring to China.
Treasury Secretary John W. Snow is expected to bring up the issue of exchange rates at a meeting of the Group of 8 finance ministers in
But even some longstanding advocates of free trade are growing increasingly frustrated with
"The administration," said C. Fred Bergsten of the Institute for International Economics in
While
Over all, the deficit jumped nearly 18 percent in 2005 compared with the previous year. Excluding oil and other petroleum products, the trade gap grew by 10 percent.
After
The deficit with members of the Organization of the Petroleum Exporting Countries increased by 29 percent, to $92.7 billion. For December, the trade deficit grew by 1.5 percent over the previous month, to $65.7 billion, as imports of computers, cars and airplanes rose and exports of planes, which had risen sharply in November, dropped. It was the third-largest monthly trade gap on record.
And with oil prices rising again, said Ashraf Laidi, chief currency analyst for the MG Financial Group in
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