Trade Deficit Hits Record $55.5B

cbsnewyork.com
Trade Deficit Hits Record $55.5B

Dec 14, 2004

America's trade deficit swelled to an all-time high of $55.5 billion in October as imports — including those from China — surged to the loftiest levels on record. Skyrocketing crude-oil prices also contributed to the yawning trade gap.

"We just can't continue to spend more than we are making. That's not healthy in the long run," Standard & Poor's chief economist David Wyss told CBS Radio News.

The latest snapshot of trade activity, reported by the Commerce Department on Tuesday, showed the country's trade imbalance widening by a sizable 8.9 percent in October from the previous month.

"We just continue to buy so much from overseas," said Wyss. "Even though our exports were really good, a new record high for exports, just the import growth blew it away."

The growth in imports dwarfed the pace of exports in October, producing another bloated trade gap. The trade deficit was much bigger than the $52.4 billion imbalance economists were forecasting.

Imports of goods and services climbed to a record high of $153.5 billion in October, representing a 3.4 percent increase from September.

The United States' politically sensitive trade deficit with China clocked a record $16.8 billion as imports flowing from the country posted all-time highs.

The Bush administration has been pressing China to let its currency, the yuan, be set in open markets. U.S. manufacturers claims Beijing's currency policies give Chinese companies a big competitive advantage over U.S. companies.

The White House blames the huge increase in the trade deficit on oil imports, reports CBS News Correspondent Peter Maer. The average price of crude oil soared to a record $41.79 a barrel — a whopping 11.1 percent increase from September's price. Spokesman Scott McClellan said that was "a big factor."

McClellan also said the U.S. economy is still growing factor than the economies of most other countries. He said exports are rising but he concedes imports are rising even faster.

U.S. exports rose by 0.6 percent in October from the previous month to a record $98.1 billion. Sales of U.S.-made industrial supplies to other countries totaled a record high of $18 billion. Exports of capital goods, including drilling equipment and airplanes, also gained ground.

Wyss said other countries, from Japan to the European Union, need to pull their weight in the world economy.

"We cannot afford, we don't have the traction to be the locomotive for the entire world," he said.

The Bush administration believes the best way to handle the mushrooming trade deficits is by getting other countries to remove trade barriers and open their markets to U.S. businesses.

But Democrats and trade unions argue that the president's free-trade policies aren't working and have contributed to the migration of jobs overseas. Critics contend that trade deals ought to include stronger protections for workers and to protect the environment.

The previous record high U.S. trade deficit of $55.3 billion was recorded in June.

Federal Reserve Chairman Alan Greenspan, in a speech last month, warned that swollen trade deficits eventually could threaten the economy by souring foreign appetites to invest in the United States. Thus far, that hasn't happened, but policy-makers can't be complacent, he said.

Persistent concerns in Europe over the U.S. trade and budget deficits has been a key factor in the U.S. dollar's recent slid — on several occasions to record lows — against the euro, the currency used by 12 countries.

The value of the dollar, which had already been weakening, helps U.S. exporters and manufacturers because it makes their goods and services cheaper and more competitive to foreign buyers.

Although the administration espouses a "strong dollar" policy, it hasn't taken specific action to break the dollar's decline. Private economists say that's because the administration is fine with what has so far been a relatively orderly decline in the dollar.

America's trade deficit with Canada grew to $5.6 billion in October, a 7.8 percent increase from September. The United State's trade imbalance with Mexico surged by 15.4 percent to $4.4 billion in October as imports from the country hit record highs.

The United State's trade deficit with oil-producing nations, including Saudi Arabia and Venezuela, clocked a record $7.2 billion in October as imports from these countries hit all-time highs.

America's deficit with Japan, however, narrowed in October to $5.9 billion as U.S. exports to Japan were the highest since March 2001.