The monthly U.S. trade deficit soared to an all-time high of $60.3 billion in November, the Commerce Department reported yesterday, sending the dollar tumbling and raising new worries about whether the U.S. economy has become too dependent on borrowing from foreigners.
November was the seventh month in 2004 in which the trade deficit set a record. The dollar's sharp decline over the past couple of years has failed to boost exports or curb imports to the point where the gap will start to shrink. Imports rose 1.3 percent in November, to $155.85 billion, while exports unexpectedly fell 2.3 percent, to $95.55 billion.
Containers await transportation at the port in Long Beach, Calif. With imports rising and exports falling, the U.S. trade deficit is approaching 6 percent of GDP, economists warn.
(Ric Francis -- AP)
The trend reflects a fundamental imbalance in the global economy that many economists fear could eventually spark turmoil in financial markets. The seemingly boundless appetite of U.S. consumers for foreign goods helps sustain economies overseas that rely heavily on exports. But America pays its import bill by effectively borrowing upward of $600 billion a year from abroad. The figure has been increasing at such a steady pace, even in comparison to the nation's large economy, that some analysts think it could trigger a panicked sell-off of U.S. bonds and stocks that would send interest rates higher and perhaps snuff out the economic expansion.
"You look at these numbers and you just can't help being alarmed by them," said Desmond Lachman, a scholar at the American Enterprise Institute. "Imports just continue to barrel ahead, and exports are lagging."
At its current pace, Lachman noted, the broadest measure of the trade gap is nearing 6 percent of gross domestic product, substantially higher than it was in the late 1980s when a declining dollar upset world financial markets and fueled a plunge in U.S. stock prices.
Currency traders began heavily selling the dollar as soon as the report was released in the morning. The U.S. currency had rebounded in the first few trading days of the year, but yesterday it sank against the euro. A euro bought $1.3271 in late New York trading, compared with $1.3123 on Tuesday. A dollar bought 102.35 Japanese yen, down from 103.25.
The latest numbers did not shake the Bush administration's position that the trade gap should be viewed as a symptom of the U.S. economy's relative strength.
"What those numbers reflect is that the American economy is growing at a rate which is differentially higher than our trading partners," Treasury Secretary John W. Snow said in a telephone interview. "With our high growth rate, we're creating lots of jobs and creating a lot of disposable income, and part of that disposable income is going into purchases of goods and services from trading partners. At the same time, trading partners are growing much more slowly, so their income is lagging, and they aren't buying as much from us as they would if they had higher growth."
That is why the United States is prodding other major economies, especially Europe and Japan, to spur faster expansion, Snow said. The United States will push the issue at a meeting next month of the Group of Seven major industrial countries, he said.
Economists agree that faster growth in Europe and Japan would help ease the U.S. trade deficit. But that does not diminish the concern of many that the gap has become so large and intractable that it threatens global financial stability. Even those who play down the risks of a financial crisis tend to think the trade deficit will cause the dollar to fall a lot further, which in the long run means U.S. consumers will have less purchasing power than they would otherwise.