Wednesday, January 12, 2005
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January 12, 2005U.S. Trade Deficit Hit Highest Figure Ever in NovemberBy ELIZABETH BECKER WASHINGTON, Jan. 12 - The United States trade deficit soared to a new high of $60.3 billion in November, the Commerce Department reported today. The figure breaks all previous monthly records and confounds predictions that the deficit would diminish now that the dollar has weakened and the price of oil has eased.Instead the trade gap has now reached the size of the Grand Canyon, in the words of one analyst, and is putting increased pressure on the dollar to drop even further, pressure that could continue unabated.The dollar fell sharply on news of the unexpectedly wide trade deficit, dropping to 102.42 Japanese yen by this afternoon, from 103.25 yen late Tuesday. The euro climbed to $1.3266, from $1.3123.The jump in the trade deficit showed a surprising weakening in American exports across the board, from agricultural products to capital goods like aircraft and semiconductors. The figures released by the Commerce Department showed that the trade deficit is on pace to exceed $600 billion for 2004, up from $496.5 billion last year.The United States is too deeply in debt, economists said, and several things would have to be changed if the trend was to be reversed. American savings would have to increase. The administration would have to make tough choices to balance the budget. And China would have to make its currency exchange rate flexible rather than tied to the dollar.But convincing trading partners to adjust their policies to improve the United States' trade imbalance will be difficult at best since these same countries are underwriting the United States' debt.The net debt position of the United States now stands at $2.4 trillion, a debt that is costing the United States roughly $333 per person per year in interest."A trade deficit of this magnitude is not good, it is not good," said Richard DeKaser, chief economist at National City Corporation. "The problem is how do you tell these countries like China to change when they are funding the U.S. government. We'd like the Chinese to change their currency rate and at the same time continue to lend to us."As usual, the United States posted its largest deficit with China at $16.6 billion, more than double the next largest deficits of $7.297 billion with Canada and $7.285 billion with Japan.The administration disagreed with most economists and said that the deficit showed the strength of the United States economy, not its weakness.Treasury Secretary John W. Snow said in a telephone interview that the deficit was a sign that the American economy "is growing faster than those of our trading partners in the Eurozone and in Japan.""The economy is growing, expanding, creating jobs and disposable income and that shows up in the demand for imports," Mr. Snow said.He blamed the United States' wealthy trading partners for growing too slowly and failing to buying enough American goods and services. He said that Europeans and the Japanese needed to expand their economies and buy more American products to improve the United States' trading picture, an issue he said would be discussed in two weeks at the meeting in London of Group of 7 wealthy industrial nations.But the Europeans disagreed with this analysis and said that it was not evident that Europeans would buy more American goods even if the growth of their economies expanded by another percentage point to match that of the United States.Anthony Gooch, spokesman for the European Union in Washington, said there were many factors contributing to the growing United States trade deficit."There are many reasons why the United States is running its trade deficit but if it produces American goods of quality and at a competitive price they will sell themselves," he said. "They always have and they always will."Few economists saw any immediate sign that the trend would reverse since most of the obvious remedies - lowering the value of the dollar and dropping the price of oil - had failed to stabilize the deficit much less reduce it."We now have the Grand Canyon of trade deficits and we can't be certain it won't widen further, " said Joel L. Naroff, of Naroff Economic Advisors of Holland, Pa. "Even if foreign companies start raising prices we could still keep buying their goods at higher prices."Several economists pointed to China and its fixed currency exchange rate as one of the biggest problems for the United States.David Greenlaw, economist at Morgan Stanley, said that while there was some truth to the administration's complaints that other economies needed to expand and buy more American goods, the Chinese had to give up its fixed rate."If we keep heading in this direction and I don't see any sign of a change soon, you're going to have to have a meaningful further shift in currency values, especially if China doesn't budge," Mr. Greenlaw said.Mr. Gooch said that Europe was concerned about being able to sell products in the United States because of an unfavorable exchange rate."The trade deficit is a crisis waiting to happen," said Robert E. Scott, senior international economist at the Economic Policy Institute, a liberal think tank. "We can't continue to borrow $650 billion from the rest of the world to finance our consumption."
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January 12, 2005U.S. Trade Deficit Hit Highest Figure Ever in NovemberBy ELIZABETH BECKER WASHINGTON, Jan. 12 - The United States trade deficit soared to a new high of $60.3 billion in November, the Commerce Department reported today. The figure breaks all previous monthly records and confounds predictions that the deficit would diminish now that the dollar has weakened and the price of oil has eased.Instead the trade gap has now reached the size of the Grand Canyon, in the words of one analyst, and is putting increased pressure on the dollar to drop even further, pressure that could continue unabated.The dollar fell sharply on news of the unexpectedly wide trade deficit, dropping to 102.42 Japanese yen by this afternoon, from 103.25 yen late Tuesday. The euro climbed to $1.3266, from $1.3123.The jump in the trade deficit showed a surprising weakening in American exports across the board, from agricultural products to capital goods like aircraft and semiconductors. The figures released by the Commerce Department showed that the trade deficit is on pace to exceed $600 billion for 2004, up from $496.5 billion last year.The United States is too deeply in debt, economists said, and several things would have to be changed if the trend was to be reversed. American savings would have to increase. The administration would have to make tough choices to balance the budget. And China would have to make its currency exchange rate flexible rather than tied to the dollar.But convincing trading partners to adjust their policies to improve the United States' trade imbalance will be difficult at best since these same countries are underwriting the United States' debt.The net debt position of the United States now stands at $2.4 trillion, a debt that is costing the United States roughly $333 per person per year in interest."A trade deficit of this magnitude is not good, it is not good," said Richard DeKaser, chief economist at National City Corporation. "The problem is how do you tell these countries like China to change when they are funding the U.S. government. We'd like the Chinese to change their currency rate and at the same time continue to lend to us."As usual, the United States posted its largest deficit with China at $16.6 billion, more than double the next largest deficits of $7.297 billion with Canada and $7.285 billion with Japan.The administration disagreed with most economists and said that the deficit showed the strength of the United States economy, not its weakness.Treasury Secretary John W. Snow said in a telephone interview that the deficit was a sign that the American economy "is growing faster than those of our trading partners in the Eurozone and in Japan.""The economy is growing, expanding, creating jobs and disposable income and that shows up in the demand for imports," Mr. Snow said.He blamed the United States' wealthy trading partners for growing too slowly and failing to buying enough American goods and services. He said that Europeans and the Japanese needed to expand their economies and buy more American products to improve the United States' trading picture, an issue he said would be discussed in two weeks at the meeting in London of Group of 7 wealthy industrial nations.But the Europeans disagreed with this analysis and said that it was not evident that Europeans would buy more American goods even if the growth of their economies expanded by another percentage point to match that of the United States.Anthony Gooch, spokesman for the European Union in Washington, said there were many factors contributing to the growing United States trade deficit."There are many reasons why the United States is running its trade deficit but if it produces American goods of quality and at a competitive price they will sell themselves," he said. "They always have and they always will."Few economists saw any immediate sign that the trend would reverse since most of the obvious remedies - lowering the value of the dollar and dropping the price of oil - had failed to stabilize the deficit much less reduce it."We now have the Grand Canyon of trade deficits and we can't be certain it won't widen further, " said Joel L. Naroff, of Naroff Economic Advisors of Holland, Pa. "Even if foreign companies start raising prices we could still keep buying their goods at higher prices."Several economists pointed to China and its fixed currency exchange rate as one of the biggest problems for the United States.David Greenlaw, economist at Morgan Stanley, said that while there was some truth to the administration's complaints that other economies needed to expand and buy more American goods, the Chinese had to give up its fixed rate."If we keep heading in this direction and I don't see any sign of a change soon, you're going to have to have a meaningful further shift in currency values, especially if China doesn't budge," Mr. Greenlaw said.Mr. Gooch said that Europe was concerned about being able to sell products in the United States because of an unfavorable exchange rate."The trade deficit is a crisis waiting to happen," said Robert E. Scott, senior international economist at the Economic Policy Institute, a liberal think tank. "We can't continue to borrow $650 billion from the rest of the world to finance our consumption."
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