U.S. trade deficit at record high

Imports of oil, textiles push total to $61 billion

April 13, 2005|By William Neikirk | William Neikirk,CHICAGO TRIBUNE

WASHINGTON - Imports of expensive oil and cheap textiles helped drive the U.S. trade deficit to a record $61 billion in February, the government said yesterday, as America's ravenous appetite for foreign goods showed no signs of abating.

Economists expressed concern about the trade deficit's surprise worsening from January's trade gap of $58.5 billion. As a result of the new numbers, many economists lowered their projections for first-quarter economic growth.

The Commerce Department said the United States exported $100.5 billion in goods and services in February, up $50 million from January, and imported $161.5 billion, up about $2.9 billion from January.

The trade deficit broke the previous record of $59.4 billion recorded in November. Economists said they expect more trade-deficit records will be set in coming months, as the full effect of surging oil prices is felt.

"This is a clear disappointment," said Nigel Gault, economist for Global Insight, a Waltham, Mass., consulting firm. As a result, he is marking down his projection for first-quarter economic growth from an annual rate of 4.1 percent to 3.6 percent.

Many economists said the trade deficit could severely damage the U.S. economy if it is not brought under control. They fear it could bring on a financial crisis triggered by a sharp decline in the dollar's value.

Their main fear is that foreign countries who hold billions of dollars in U.S. investments, such as stocks, bonds and government securities, might invest their money elsewhere and cause American stock prices to plunge and interest rates to soar.

But there has been no sign that these fears will be realized.

The announcement of the trade deficit roiled financial markets earlier yesterday, but the stock market rallied and closed higher after the Federal Reserve released minutes from last month's meeting which appeared to dispel fears that it was prepared to raise interest rates sharply higher.

Deterioration in the nation's trade picture has grown into a bigger political issue as Democrats are increasingly using it to attack President Bush's free-trade policies. Democrats are fighting Bush's effort to win approval of the Central American Free Trade Agreement, which would lower trade barriers with six Latin American nations.

Sen. Byron L. Dorgan, a North Dakota Democrat, called the trade imbalance "a real crisis that, if not dealt with, will have serious long-term consequences for American jobs and future economic growth."

"I call on the president to park Air Force One and work with us to develop a trade policy that works for America," he said.

The administration also is facing increasing pressure to erect trade barriers to protect the U.S. textile industry from a jump in Chinese textile and clothing imports. The low-wage Chinese textile industry has accelerated its exports since global textile quotas expired at the end of 2004.

The report showed that the value of imports of Chinese textiles and clothing increased 62.4 percent in January and February compared with the corresponding two months in 2004.

In February, imports of textiles and clothing from China went up by 9.8 percent over January, the report said, despite the fact that America's trade deficit with the Chinese fell from $15.3 billion in January to $13.9 billion in February.

U.S. textile and clothing manufacturers have complained to the administration about the recent surge of Chinese imports. In response to these pressures, the government has launched an investigation to determine whether to slap quotas on Chinese imports to protect the domestic industry.

While the report showed that the closely watched U.S.-Chinese economic relationship continues to yield more benefits for China, it also revealed that U.S. exports to China improved from $2.5 billion in January to $3.1 billion in February.

The recent jump in oil prices had a strong impact on red ink in America's trade position. The report said the United States imported $18.2 billion in foreign petroleum products, a 10.3 percent increase over January.

Concerns that the trade deficit could set off a financial crisis have been expressed by a number of economic analysts.

"I am worried that we can't continue indefinitely like this," Gault said. "But so far, the rest of the world has been happy to lend us back the excess dollars that they are accumulating."

The U.S. trade deficit with Europe in February grew to $10.1 billion, up from $9.5 billion in January. The United States had a $6.9 billion deficit with Japan in February, up from $6.2 billion in January.

The Chicago Tribune is a Tribune Publishing newspaper.

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