WASHINGTON -- The U.S. trade gap unexpectedly spread to a record $68.9 billion in October, the government reported yesterday.
For many economists, that chasm - widening 4 percent from September's deficit instead of declining as analysts predicted - was a troubling sign that Americans are increasingly borrowing and buying while other nations lend the United States the money to buy their products.
While the arrangement can go on a long time, eventually a nation - like a household - must pay its debts, said Jeffrey A. Rosensweig, professor of finance at Emory University.
"Now, we've got no more excuses. We've got to put the credit cards away," he said. "We are overspending because we think we are a lot richer than we are. We are a credit-hooked nation."
Extra shipments of oil after Hurricane Katrina were part of October's story - but only part. Imports during the month jumped $4.7 billion, less than half of that because of petroleum, according to Wachovia Securities.
Mostly, the trade deficit is about global manufacturing. The United States ran a $73.9 billion deficit in goods, which swamped a $5 billion surplus in services, while running deficits with nearly all major trading partners.
The worst mismatch is with China, a $20.5 billion gap.
China is often criticized for not playing fair. By holding dollars and buying U.S. securities, the Chinese central bank holds down interest rates, fuels financial markets and keeps its products cheap for U.S. consumers.
"It makes us very vulnerable - if Asian nations sell even a small portion of their holdings, the bond market would collapse," Rosensweig said. "They may not want to do that, but we have put ourselves in a position where they have leverage over us."
The deficit is also built in China's low-cost factories and an economy growing at a breakneck clip by focusing on export production.
Yet China's expansion must slow, said Roy Bahl, dean and professor of economics at Georgia State University's Andrew Young School of Policy Studies.
And when China allows its own consumer markets to bloom and its living standards to drastically rise, it will lose some of its advantage in manufacturing, he said, noting, "But I think we are going to get more of the same for the next few years."
It is not only because of China that the trade gap has worsened - and will likely keep deteriorating, argued Alan Tonelson, research fellow at the U.S. Business and Industry Council, whose 1,000 members are mostly manufacturers.
The dollar this year has gained strength against most currencies, which makes imports cheaper and U.S. products more expensive. Meanwhile, U.S. manufacturing continues shrinking in proportion to the economy - partly because companies invest in factories overseas.
"More and more of the trade gap is structural because of the flight of manufacturing," Tonelson said.
Most economists agree that huge deficits are unhealthy, but they disagree on how long they can go on. And while a rapid balancing of the deficit would likely mean recession, some experts think the gap can be narrowed slowly.
Protectionist measures and tariffs on imports could close the gap, although both are generally condemned by economists as counterproductive. Currency changes would also help - especially if the Chinese let their yuan grow stronger against the dollar.
Overall, what's needed is for Americans to consume fewer imports while exporting more and have the opposite happen in manufacturing centers such as China, said Emory's Rosensweig.
But neither side has an urgent need to change, because the current arrangement gives China rapid growth and provides Americans a higher standard of living, said Dimitri Papadimitriou, president of the Levy Economics Institute at Bard College in Annandale-on-Hudson, N.Y.. "The U.S. doesn't really have to do anything. So it can go on for some time."
The United States has run a trade deficit for more than two decades. In October 1995, it was $6.1 billion. Last October, it was $55.6 billion.
Now, the trade deficit is nearly 7 percent of the U.S. economy. To pay for the imports, the United States relies on injections of more than $2 billion a day in foreign purchases of assets and Treasury bills.
That adds to the U.S. debt, which must be paid, Papadimitriou said, adding, "I can't say when the day of reckoning will be, but the horizon is becoming closer."