The U.S. trade deficit swelled to $66.1 billion in September, far surpassing the previous record and providing a stark reminder of America's dependence on foreign capital to fund its import bill.
Fueling the September trade gap was a 2.4 percent rise in imports, to $171.3 billion, and a 2.6 percent drop in exports, to $105.2 billion. The figures were released yesterday by the Commerce Department.
Several special circumstances lay behind the news on both the import and export sides. Thanks partly to hurricanes Katrina and Rita, the price of imported oil soared in September, and the storms also disrupted some shipments abroad of U.S. grain and other foodstuffs. Moreover, a strike at Boeing Co. helped depress aircraft exports.
For those reasons, many economists said the huge increase in the deficit was probably temporary. But the trade gap has been widening steadily over the past several years, and September's figure was substantially greater than most analysts had forecast, easily exceeding the $60.4 billion high set in February. The gap now appears on track to top $700 billion for 2005, compared with last year's record of $617.6 billion.
"I once called a previous record the Grand Canyon of all deficits. How wrong I was," said Joel L. Naroff, an economic forecaster in Holland, Pa., who, likening the September gap to the deepest part of the ocean, declared: "We are now talking about the Marianas Trench."
Economists differ over the deficit's implications, but many worry because each month's gap adds to the debt the United States incurs to satisfy Americans' appetite for foreign products. The dollars that U.S. consumers and businesses pay for imports are typically invested by foreigners in the bonds of the U.S. Treasury and mortgage-finance companies such as Fannie Mae. If the foreigners holding those hundreds of billions of dollars in securities become alarmed about U.S. indebtedness, a panicky sell-off could ensue, sparking a worldwide financial crisis.
"We can't read too much into any one month's deficit, and there were a bunch of unusual factors this time," said Kristin J. Forbes, a former member of President Bush's Council of Economic Advisers. "But this shows that the deficit is increasing instead of decreasing. It raises concern that we need to start seeing adjustment in the global trade imbalances soon."
In the past, reports such as yesterday's have often caused the U.S. dollar to decline, and immediately after the report was released, the currency weakened. But soon thereafter, it resumed its strengthening trend of recent months. This week, the dollar reached its highest levels in two years against the euro and the Japanese yen. Traders and economists attribute that to U.S. interest rates, which are high relative to those in Europe and Japan, enticing investors to keep money in U.S. securities.
Yesterday, another factor prompted currency traders to buy dollars -- a stronger-than-expected report on U.S. consumer confidence. The University of Michigan's index of consumer sentiment rebounded this month, up from the 13-month low it hit in October.
Late yesterday, the dollar was trading at $1.1731 per euro, up from $1.1765 per euro on Wednesday, and at 118.04 yen, up from 117.52.
Democrats who have been critical of the Bush administration's trade policies cited the September data as fresh evidence for their arguments. They focused especially on the U.S. trade deficit with China, which increased 9 percent over the August level, to a record $20.1 billion.
China's trade surplus has been exploding in recent months, prompting complaints from many U.S. manufacturers, politicians and economists that the nation's currency, the yuan, is undervalued, keeping Chinese goods artificially cheap on world markets. Although China de-linked the yuan from the dollar in July, it has allowed its currency to rise only a little more than 2 percent since then.
"When it comes to meaningful trade policy with China, this administration is missing in action," said Rep. Benjamin L. Cardin (D-Md.), ranking minority member of the trade subcommittee of the House Ways and Means Committee. "Once again, we are faced with record-breaking trade deficits. And once again, the Chinese have failed to act on their promise to revalue their currency. Every day this administration waits, we give an artificial trade advantage to the Chinese."
President Bush, who will travel to China this month, said this week that he would press the issue with Chinese President Hu Jintao.
"I will remind him that this government believes they should continue to advance toward market-based [valuation] of their currency for the sake of the world, not just for the sake of bilateral relations," Bush told Asian journalists.