U.S. TRADE DEFICIT SETS RECORD

[Anonymous]

U.S.Trade Deficit Sets Record for Fifth Year
WASHINGTON
(March 07) – The deficit in the broadest measure of trade set a record
for the fifth consecutive year even though the imbalance in the final
three months of 2006 shrank, reflecting a lower foreign oil bill.The
Commerce Department reported that the imbalance in the current account
jumped by 8.2 percent to $856.7 billion, representing a record 6.5
percent of the total economy. For the fourth quarter, the deficit
shrank by 14.6 percent to $195.8 billion, the smallest quarterly
imbalance since the summer of 2005.Even with the fourth quarter
improvement, administration critics say the soaring deficit for the
whole year shows the failure of President Bush’s trade policies to
protect American workers. They contend that America is going into hock
to foreigners at an alarming rate even though they have been more than
willing so far to hold American assets in return for sales of
televisions, cars and other goods to U.S. consumers.The current account
is the broadest measure of trade because it covers not only trade in
goods and services but also investment flows between countries. It also
represents the amount of U.S. assets that have been transferred into
foreign hands to cover the gap between American exports and imports.A
deficit of $856.7 billion in 2006 meant that the United States was
borrowing more than $2 billion daily to finance its trade gap. So far
foreigners have been quite happy to sell to the United States and hold
dollars in return, money that has been invested in U.S. Treasury
securities, the stocks of American companies and other assets.However,
the concern is that if foreigners lose their appetite for U.S.
investments, it could cause a big plunge in the value of the dollar,
send stock prices crashing and interest rates soaring. If the
adjustment were large enough, it could push the country into a
recession.While believing that the current account will have to come
down in coming years, many economists also think the adjustment can be
made at a more gradual pace that will not seriously disrupt the U.S.
economy.The $195.8 billion deficit in the fourth quarter was down from
a third quarter deficit of $229.4 billion. The drop reflected a big
decline in oil prices during the period compared to record oil prices
hit last summer.Many economists believe that America’s trade deficit
will start to show gradual improvement this year as long as oil prices
do not surge again. Part of the optimism reflects growth in U.S.
exports, which are being spurred by stronger economic growth in many of
America’s major markets and also a weaker dollar against such
currencies as the euro.A lower value for the dollar makes foreign trips
for American tourists more expensive but it lowers the price of U.S.
products on overseas markets, boosting exports.The Bush administration
has warned against a protectionist backlash in this country from the
huge trade deficits. But Democrats, who gained control of both the
House and Senate for the first time in 12 years, contend that the
administration needs to do more to protect American workers from unfair
competition from low-wage countries with lax labor and environmental
regulations. 

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March 14, 2007 at 10:34 AM