U.S. trade deficit surged in April

Costlier oil imports helped push it up 6.3%

exports up 3%, set record

June 11, 2005|By William Neikirk | William Neikirk,CHICAGO TRIBUNE

WASHINGTON - Led by oil imports, the U.S. trade deficit rose 6.3 percent in April, to $57 billion, the fourth-highest in history, the government reported yesterday. Wall Street had been expecting a $58 billion deficit.

Yet, as the deficit widens, the country is going deeper into debt to the rest of the world because other countries are using accumulated dollars to buy U.S. Treasury securities and private assets such as stocks and bonds.

Some economists say the United States and the world economy would undoubtedly be a basket case if Americans bought fewer foreign goods, because the exporting nations wouldn't have a place to sell.

Depending on one's perspective, the big U.S. trade deficit is appalling or soothing, a national economic disaster or a natural development that happens when other countries can produce goods at lower cost than the United States.

Yesterday's report reflected those conflicting views of the trade gap. Imports rose 4.1 percent, to $163.38 billion, as the nation's foreign petroleum costs surged to $19.4 billion, second only to November's $19.5 billion.

But exports rose 3 percent, to a record $106.42 billion, led by commercial aircraft, industrial engines and semiconductors.

"This was the fastest monthly increase in capital goods exports in five years [since April 2000] and very welcome news for American manufacturers," said David Heuther, the chief economist at the National Association of Manufacturers.

Some Democrats, especially Sen. Byron L. Dorgan of North Dakota, called the rising deficit a crisis and an indication that the nation is losing tens of thousands of jobs. He said such a deficit does not bode well for the Central American Free Trade Agreement before Congress.

Some analysts said the deficit is a sure sign that many of the biggest domestic companies have become less competitive.

"Americans continue to buy Japanese, Korean and German cars in large numbers, and more consumer goods from Asia, in addition to more expensive crude oil and refined petroleum products from abroad," said Peter Morici, a business professor at the University of Maryland.

The deficit is to blame for a decline in inflation-adjusted wages and a loss of well-paid jobs in the United States, Morici said, as the country is flooded with imports from countries such as China and other Asian nations that keep their currencies artificially low to get an edge.

But William Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said U.S. consumer spending is a big boost for "moribund economies" around the world and that people should be grateful for that.

"It's true that we are living beyond our means to some extent, but it's also true that if we weren't out there consuming like crazy, the global economy might well be in a long and stubborn recession," he said.

The deficit in April increased by 6.3 percent from a revised $53.56 billion in March. The record monthly deficit of $60.12 billion was set in February. Analysts said this year's deficit is likely to top last year's record of $617.58 billion.

Gary C. Hufbauer, an economist at the Institute for International Economics, a Washington think tank, said the United States goes deeper in debt to other countries each year. The nation's net external debt to other countries is about 28 percent of its gross domestic product, he said.

If the trade deficit continues on its current path for eight more years, he said, that figure would rise to 50 percent. In his view, such a debt would be unsustainable from a financial standpoint and the United States and the global economy would be in a crisis.

Hufbauer said one positive result of the trade deficit is that countries selling goods to the United States are willing to lend money to Americans so that they can continue to buy. To a large extent, he said, this flood of foreign lending has helped keep interest rates low and finance a housing boom, which some fear is turning into a bubble.

Kathleen Stephansen, an economist at Credit Suisse First Boston Corp., said the trade deficit is not a major economic issue at the moment. It shows that U.S. consumers are an "important element" of global growth, especially in the export-led countries of Asia, she said.

Jason Schenker, an economist at Wachovia Bank in Charlotte, N.C., pointed to an overlooked aspect of the trade deficit. Increasingly, he said, the United States is importing raw materials that once were produced at home. In addition to petroleum, that includes such materials as copper, tin, rubber, lumber and nickel, he said.

Since the beginning of the year, the United States has imported $37.7 billion in raw materials, Schenker said.

Stephansen and other analysts said China would adjust its currency modestly this year, but not by enough to hurt its exports to the United States. Beijing will do that "to get the rest of the world off Washington has grown tougher on China, which had a $14.7 billion trade surplus with the United States in April. In addition to putting pressure on China to adjust its currency, it has put quotas on Chinese textile and clothing imports, and pushed China to do more to halt the piracy of American movies, music and computer programs.

The Chicago Tribune is a Tribune Publishing newspaper.

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