US trade deficit hits new record high

Updated: 2007-02-14 10:55

The US trade deficit set a record for a fifth straight year in 2006, with the gap between what it sells abroad and what it imports rising to a massive $763.6 billion, the US Commerce Department has reported.

Total exports of US goods and services jumped 12.8 percent last year to an all-time high of $1.44 trillion. Imports, however, also set a record, rising by 10.4 percent to an all-time high of $2.20 trillion.

The department said the US deficit with China rose 15.4 percent last year to $232.5 billion, the largest imbalance ever recorded with a single trading partner. China's official trade figure concerning the US, usually much smaller, is not made public yet.

In addition to China, other countries that set record trade gaps with the US last year were Japan, at $88.4 billion; and Mexico, at $64.1 billion.

There is good news coming in. Private economists in the US said the worst may be over for the trade deficit, forecasting that the US trade gap will actually decline in 2007 as lower oil prices slow the growth of imports and a weaker dollar against major world currencies helps boost US exports.

And, the Bush administration has pledged to keep pursuing its free-trade policies, though Democrats controlling Congress have demanded a change in US trade policies.

US House Speaker Nancy Pelosi and 13 other top House Democrats sent Bush a letter saying the new trade figures underscored the urgency for a course change on trade. "The consequences of these persistent and massive trade deficits include not only failed businesses, displaced workers, lower real wages and rising inequality, but also permanent devastation of our communities," the letter said.

The Democrats urged Bush to pursue more cases against its trade partners including a challenge before the World Trade Organization against currency practices of China and Japan, reported the Associated Press. Some in the US contend the yuan is undervalued by about 15-40 percent, making Chinese goods cheaper and US products more expensive in China. American automakers have alleged that Japan is unfairly manipulating the value of the yen to boost sales of Japanese cars in the US.

Bush administration officials said the wider deficits were primarily a factor of faster growth in the United States and warned against pursuing policies that would erect protectionist trade barriers in this country, the Associated Press has reported.

"Our focus is on growing our exports, growing our economy, reducing our unemployment and keeping inflation in check," US Commerce Secretary Carlos Gutierrez said .

And, US Treasury Secretary Henry Paulson announced he was naming Alan Holmer, a pharmaceutical company executive, to be his deputy in charge of a new high-level strategic dialogue with China that he instituted last December.

Paulson said the next meetings would be May 23-24 in Washington and that he was in frequent contact with the head of the Chinese delegation, Vice-Premier Wu Yi, in an effort to achieve results to lessen trade tensions with Beijing.

Mark Zandi, chief economist at Moody's, predicted China will let its currency rise in value by about 5 percent annually over the next few years, but he cautioned the move will be not enough to stop the US-China trade gap from rising.

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