Oil, China blamed for record deficit

Instead of murders and mayhew, sharks and missing SWFs, shouldn't we really be learning about all this?
I've also posted about China here.
(AP via Sun-Sentinel)

By Martin Crutsinger
The Associated Press
Posted February 11 2006

WASHINGTON · American appetites for all things foreign, from oil to cars to clothing, pushed the trade deficit to yet another record in 2005.

And the year's $201.6 billion deficit with China, the largest ever recorded with a single country, brought demands for a crackdown on what the United States sees as unfair trade practices.

The Commerce Department reported Friday that the overall trade gap climbed to an all-time high of $725.8 billion last year. The deficit was up 17.5 percent from 2004, marking the fourth straight record.

On Wall Street, the Dow Jones industrial average rose 35.70 points to close at 10,919.05 Friday after being down as much as 63 points earlier in the session.

The chief culprit in pushing the deficit up last year was record global oil prices and increased U.S. demand because of a loss of Gulf Coast production after Hurricane Katrina. The U.S. foreign oil bill soared to a record $251.6 billion, up 39.4 percent from 2004.

Imports of other consumer goods including foreign autos hit record levels as well, a development that is causing major woes for U.S. automakers.

Analysts predicted that the 2006 trade gap will be even worse, with Global Insight forecasting it could hit $810 billion, reflecting lagging economic growth overseas that could hold back U.S. exports.

"Trade is far and away the largest weight on the U.S. economy at present," said Mark Zandi, chief economist at Moody's Economy.com. "This is a risky time."

The record amounts of dollars that are flowing into foreign hands to pay for imports are being invested in U.S. stocks, bonds and other investments. Economists worry that if foreigners suddenly decide they want to hold fewer U.S. assets, they could send the value of the dollar, stocks and bonds all plunging.

The record flow of foreign goods into this country has given consumers a wide array of choices at low prices, helping to keep a lid on inflation. But critics contend the trade deficits have contributed to the loss of nearly 3 million manufacturing jobs since mid-2000 as U.S. companies moved production overseas to lower-waged nations. Many economists believe those manufacturing jobs will never come back.

"America's gargantuan trade deficit is a weight around American workers' necks that is pulling them into a cycle of debt, bankruptcy and low-wage service jobs," said Richard Trumka, secretary-treasurer of the AFL-CIO.

In an effort to counter economic anxiety, Bush included in his new budget an American Competitiveness Initiative to double government spending on basic research, extend tax breaks for company spending on research and hire thousands of new math and science teachers for the nation's high schools.

Many in Congress want a tougher approach. Legislation with broad support in the House and Senate would impose across-the-board tariffs of 27.5 percent on Chinese imports unless China stops what critics charge is a manipulation of its currency to gain trade advantages.

Other legislation introduced on Thursday by Sens. Byron Dorgan, D-N.D., and Lindsey Graham, R-S.C., would make China's current low tariffs subject to annual review by Congress to make sure the country is following global trade rules.

Last year, imports rose by 12.9 percent to an all-time high of $2 trillion, swamping a 10.4 percent increase in exports, which reached a record high of $1.27 trillion. For December, the trade deficit edged up a slight 1.5 percent to $65.7 billion, the third highest monthly figure on record.

The $201.6 billion U.S. trade deficit with China was the highest ever recorded with any country.