Oil Prices, Imported Goods Push Trade Gap to Record

By Peter S. Goodman and Nell Henderson
Washington Post Staff Writers
Wednesday, February 14, 2007

The U.S. trade deficit climbed to a record high for the fifth straight year, with 2006 imports exceeding exports by $764 billion, the Commerce Department reported yesterday. The gap reflects higher oil prices, which increased the nation's import bill, and American consumers' rising appetite for foreign-made goods.

The figures raised tensions in Washington, unleashing criticism on Capitol Hill of the Bush administration's pursuit of new trade deals. They also provoked a fresh round of demands for action against China, whose trade surplus with the United States swelled to a record $233 billion last year, according to the Commerce Department.

The data also prompted some economists to cut their economic growth projections. Several private analysts said the trade figures, combined with other indicators such as the prolonged slump in the housing market, imply the economy grew at a modest annual rate of 2.2 percent in the last three months of 2006 -- well below the 3.5 percent pace estimated earlier this month by the Commerce Department in a preliminary report.

Wall Street, as it often does, took cheer from bad news. Stocks rallied yesterday as the prospect of slower growth eased concerns that the Federal Reserve might bump up interest rates to fight inflation, and revived hopes in some quarters that the Fed might cut rates soon. But slower growth could also make businesses more cautious about expanding, meaning higher unemployment for U.S. workers.

In Congress, the new Democratic leadership used the record deficit to accuse the Bush administration of selling out the interests of American workers in pursuit of trade deals. In a letter to President Bush, top Democrats, including House Speaker Nancy Pelosi (D-Calif.) and Rep. Charles B. Rangel (D-N.Y.), chairman of the Ways and Means Committee, called the trade deficit "unsustainable," listing among its consequences "failed businesses, displaced workers, lower real wages and rising inequality."

The House leaders called on the president to submit an action plan within 90 days aimed at shrinking the deficit by removing barriers to U.S. exports and eradicating trading practices they regard as unfair.

A White House spokesman, Tony Fratto, said the letter was "not the most helpful approach." But he added that the White House would "work with Congress" in seeking approval for new trade deals.

"Trade is good for America," Fratto said. "There are dislocations for people when you trade. A factory closes, those are real people. But the benefits that accrue to all Americans are clear."

Increasing the pressure on Beijing, a bipartisan group of senators introduced legislation yesterday that would revoke China's permanent normal trade relations with the United States. That would restore the system, in place until 2001, that forced China to pass congressional review of its trade practices each year to maintain unhindered access to the American market.

The Bush administration is scrambling to stay ahead of congressional demands for action on China. Earlier this month, the administration announced that it would pursue a case against China at the World Trade Organization for allegedly subsidizing exports, a process that could eventually allow the United States to impose retaliatory tariffs.

Yesterday, U.S. Treasury Secretary Henry M. Paulson Jr. named a former Reagan administration deputy U.S. trade representative, Alan F. Holmer, as his special envoy to China for a dialogue on economic issues he launched last year.

Paulson has been under pressure to show results in his campaign to persuade China to allow the value of its currency, the yuan, to float freely. Manufacturers and labor unions in the United States accuse China of keeping the yuan artificially low to make its goods unfairly cheap on world markets, thereby taking jobs from Americans.

CONTINUED     1        >

© 2007 The Washington Post Company