WASHINGTON – American appetites for all things foreign, from oil to cars to clothing, pushed the trade deficit to yet another record in 2005.
And the year’s $201.6 billion deficit with China, the largest ever recorded with a single country, brought demands for a crackdown on what the U.S. sees as unfair trade practices.
The Commerce Department reported Friday that the overall trade gap climbed to an all-time high of $725.8 billion last year. The deficit was up 17.5 percent from 2004, marking the fourth straight record.
The chief culprit last year was record global oil prices and increased U.S. demand because of a loss of Gulf Coast production following Hurricane Katrina. The U.S. foreign oil bill soared to a record $251.6 billion, up 39.4 percent from 2004.
Imports of other consumer goods including foreign autos hit record levels as well, a development that is causing major woes for U.S. automakers.
Analysts predicted that the 2006 trade gap will be even worse, with Global Insight forecasting it could hit $810 billion, reflecting lagging economic growth overseas that could hold back U.S. exports.
“Trade is far and away the largest weight on the U.S. economy at present,” said Mark Zandi, chief economist at Moody’s Economy.com. “This is a risky time.”
The record amounts of dollars that are flowing into foreign hands to pay for imports are being invested in U.S. stocks, bonds and other investments. Economists worry that if foreigners suddenly decide they want to hold fewer U.S. assets, they could send the value of the dollar, stocks and bonds all plunging.
The record flow of foreign goods into this country has given consumers a wide array of choices at low prices, helping to keep a lid on inflation. But critics contend the trade deficits have contributed to the loss of nearly 3 million manufacturing jobs since mid-2000 as U.S. companies moved production overseas to lower-waged nations. Many economists believe those manufacturing jobs will never come back.
“America’s gargantuan trade deficit is a weight around American workers’ necks that is pulling them into a cycle of debt, bankruptcy and low-wage service jobs,” said Richard Trumka, secretary-treasurer of the AFL-CIO.
In an effort to quell economic anxiety, Bush included in his new budget an American Competitiveness Initiative to double government spending on basic research, extend tax breaks for company spending on research and hire thousands of new math and science teachers for the nation’s high schools.
Many in Congress want a tougher approach. Legislation with broad support in the House and Senate would impose across-the-board tariffs of 27.5 percent on Chinese imports unless China stops what critics charge is a blatant manipulation of its currency to gain trade advantages.
Other legislation introduced on Thursday by Sens. Byron Dorgan, D-N.D., and Lindsey Graham, R-S.C., would make China’s current low tariffs subject to annual review by Congress to make sure the country is following global trade rules.
Dorgan said the new deficit figures showed that U.S. “trade policy is an unbelievable failure that is selling out American jobs and weakening our economy.”
Sen. Charles Schumer, D-N.Y., who is pushing the currency legislation, said the rising deficit amounted to a “a slow bleeding at the wrists economically for the United States.”
Commerce Secretary Carlos Gutierrez, touring an IBM facility in North Carolina, said Friday that the administration’s approach of emphasizing such things as expanded access for U.S. exports in countries such as China was the better approach.
“We can’t overreact and make tactical choices that will hurt our economy,” Gutierrez said.
The $201.6 billion U.S. trade deficit with China was the highest ever recorded with any country. It was up 24.5 percent above the previous record deficit of $161.9 billion with China set in 2004.
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