The New York Times
April 12, 2005
Trade Deficit Reaches All-Time High in February
By THE ASSOCIATED PRESS
Filed at 11:52 a.m. ET
WASHINGTON (AP) -- The U.S. trade deficit, aggravated by surging imports of oil and textiles, soared to an all-time high of $61.04 billion in February.
The Commerce Department said Tuesday that the February imbalance was up 4.3 percent from a $58.5 billion trade gap in January as a small $50 million rise in U.S. exports of goods and services was swamped by a $2.58 billion increase in imports.
The surging trade deficit is leading to an increase in protectionist pressures as American textile and clothing manufacturers are lobbying the administration to limit imports of Chinese textile and clothing goods to ward off a flood of products now that global quotas have expired.
For February, imports of textiles and clothing from China rose by 9.8 percent even though America's overall trade gap with China actually narrowed to $13.9 billion, down by 9.2 percent from a January deficit of $15.3 billion. The improvement reflected an increase in U.S. exports to China and declines in other import categories outside of textiles.
For the first two months of this year, the trade deficit is running at an annual rate of $717.2 billion, a full $100 billion above the record imbalance of $617.1 billion set for all of 2004.
Wall Street was jolted by February's record deficit, which was worse than had been expected. The Dow Jones industrial average was down 70 points in late-morning trading.
Economists said the sharp deterioration in the trade deficit would trim economic growth in the January-March quarter, reflecting the fact that so much consumer demand is being met with foreign goods.
``Oil prices are surging and it is likely that we will see more trade deficit records set,'' said Joel Naroff, chief economist at Naroff Economic Advisors.
Trade deficits of this magnitude have raised worries among economists about America's ability to continue to attract the foreign financing needed to cover the shortfall between exports and imports. If foreigners decided to hold fewer dollar-denominated investments such as stocks and bonds, it could trigger steep declines in U.S. stock prices and a sharp increase in interest rates.
Critics point to the soaring deficits as evidence that President Bush's free trade policies are not working and have instead contributed to the loss of 3 million American manufacturing jobs since 2000.
The Bush administration argues that the deficit primarily reflects the fact that the U.S. economy has been growing at a much faster pace than the economies of its major trading partners, pushing up imports while dampening demand for U.S. exports. Treasury Secretary John Snow was expected to use a Saturday meeting of finance officials from the Group of Seven major industrial countries to once again lobby for Europe and Japan to pursue more growth-oriented policies.
The U.S. dollar has been declining for three years, a fact that should help narrow the trade deficit by making imports more expensive to American consumers while making U.S. exports cheaper. However, economists say the dollar needs to fall further to deal with the widening trade deficit, and they are predicting a further increase in the trade gap this year.
The record February deficit of $61.04 billion surpassed the old record of $59.4 billion set last November.
Imports of goods and services rose by 1.6 percent to an all-time high of $161.5 billion.
Demand for foreign petroleum products shot up 10.3 percent to $18.2 billion, the second highest level on record, surpassed only by $19.6 billion in imports of petroleum last November.
The February increase reflected higher prices as crude oil climbed to $36.85 per barrel, compared to $35.25 in January, offsetting a drop in the volume of oil imports. Analysts said America's foreign oil bill is likely to climb even further in months ahead, reflecting further increases in global oil prices.
Exports were up by $50 million to a record $100.48 billion in February, reflecting increases in shipments of drilling and oilfield equipment, civilian aircraft and pharmaceutical products. These gains offset declines in sales of U.S.-made cars and auto parts and food.
The administration, at the urging of U.S. textile and clothing manufacturers, has begun investigations into whether to re-impose quotas on Chinese imports of various products to protect the domestic industry from market disruptions following the removal of global quotas that had restricted shipments to the United States for more than three decades.