The U.S. trade deficit rose to an all-time high of $61 billion in February, the Commerce Department reported yesterday, dealing a fresh blow to hopes that the gap will start to shrink soon in response to the decline in the dollar.
Exports stayed relatively flat, totaling $100.5 billion in February, just 0.1 percent, or $100 million, above the previous month's level. At the same time, the nation's pattern of importing more and more goods continued unchecked, as foreign products purchased by Americans rose 1.6 percent, or $2.6 billion, to $161.5 billion, led by oil, autos and consumer goods.
Traders work the floor of the New York Stock Exchange yesterday. The deficit report contributed to early market losses.
(Richard Drew -- AP)
The politically sensitive U.S. deficit with China narrowed in February to $13.9 billion from January's $15.3 billion level. But critics of China pointed out that the combined figure for those two months was 47 percent above the same period last year and said the report will fuel growing sentiment in Congress for a tougher policy on Beijing's trade practices.
The overall gap was a record -- by itself nothing new, because the monthly trade deficit has smashed through previous highs eight times since the start of last year. But yesterday's report deepened concern that the flow of goods across U.S. borders does not seem to be responding to the dollar's fall, even though that decline has continued for three years.
A cheaper dollar is supposed to spur sales of U.S. exports by making American goods more attractive to foreign purchasers, and reduce Americans' appetite for foreign products by making them more expensive. Together with some private economists, Federal Reserve Chairman Alan Greenspan predicted late last year that the move in the currency would start to exert an effect on trade flows and shrink the gap in months to come. So far, however, signs of such a development have been scant.
"I suspect that someday the trade deficit will start narrowing, but that day has yet to come and may not for a while," said Joel L. Naroff, president of Naroff Economic Advisers in Holland, Pa.
That is worrisome, according to some economists, because it increases the danger of an international financial crisis that could throw the global economy into a slump. The longer America's trade deficit remains at high levels, the more Americans must effectively borrow from foreigners to pay for the cars, clothing, electronic devices and other goods they buy from abroad. As the nation's indebtedness to foreigners rises -- it is currently in the $3 trillion range -- so does the risk that foreign investors might start dumping the dollar and unloading their holdings of U.S. bonds and stocks in a panic.
"On an annual basis, the trade deficit is now running at about 6 percent of [gross domestic product], which is a level we all believe is unsustainable," said Susan Hering, an economist with UBS Securities LLC. "But we seem to be sustaining it for a considerable period. The question is, how long will people be so forgiving? Ultimately people may regard us as a bad bet."
Not all analysts regard the trade gap as a major source of concern; indeed, the dollar rose against other currencies following yesterday's report. Bush administration officials have been particularly forceful in arguing that the United States, as by far the fastest-growing major economy, will remain attractive to investors for the foreseeable future. The Treasury Department reiterated its position that the trade gap is a symptom of the U.S. economy's relative strength.
"The trade deficit reflects the fact that the American economy has been doing better than other industrial economies, and as a result we are importing more from those other economies," said Rob Nichols, the Treasury's chief spokesman. "It's important that the other industrial economies grow at a brisker pace, and as they do, our farmers, exporters and manufacturers will be able to sell more goods overseas and the trade gap will narrow."
But Democratic lawmakers seized on the report as bolstering their contention that the administration needs to take a harder line with U.S. trading partners. "These latest figures clearly indicate that the administration's trade policies are not working," said Rep. Benjamin L. Cardin (D-Md.), ranking minority member on the trade subcommittee of the House Ways and Means Committee. Cardin noted that the Ways and Means panel will hold a hearing tomorrow to examine the administration's approach to China, especially Beijing's policy concerning its currency, the yuan.
Frustration is running high on Capitol Hill over China's practice of keeping the yuan pegged at about 8.3 yuan per dollar, which critics contend is an artificially low rate that gives Chinese goods an unfair advantage on world markets. Last week, a bill introduced in the Senate threatening to impose across-the-board tariffs on Chinese goods survived, by a 67 to 33 vote, an attempt to kill it. The bill is strongly opposed by the administration, which argues that quiet diplomacy offers the best chance for changing China's currency policy.
In another sign of congressional anger toward China, Sen. Evan Bayh (D-Ind.) said he would use his senatorial privilege to put a hold on President Bush's nomination of Rep. Rob Portman (R-Ohio) to become U.S. trade representative. Bayh said he would release the hold if Senate leaders would allow a vote on a bill he has introduced that would make it easier for the government to impose duties on goods from China and other countries that allegedly subsidize their manufacturers.