By Doug Palmer
Tuesday, February 13, 2007
WASHINGTON (Reuters) - The U.S. trade deficit hit a fifth straight annual record in 2006, driven by a record oil import bill and a flood of goods from China, a government report showed on Tuesday.
The Commerce Department said the trade gap expanded by 6.5 percent last year to an all-time high of $763.6 billion, as a record imports swamped record exports.
House of Representatives Democratic leaders seized on the mammoth trade deficit to demand fundamental changes in U.S. trade policy, beginning with stronger Bush administration action to tackle what they said were trade barriers and unfair trade practices in China, the European Union and Japan.
"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," House Speaker Nancy Pelosi and other Democrats said in a letter to President George W. Bush.
The annual shortfall partly reflected a wider-than-expected December trade gap. That month, the deficit expanded 5.3 percent to $61.2 billion as oil prices rebounded and Americans imported record amounts of consumer goods and autos.
December marked the tenth time in 2006 that the monthly deficit exceeded $60 billion. The annual trade deficit totaled just $30.7 billion in 1991 before beginning its long gallop to current record levels.
Economists said the larger-than-expected December trade gap, combined with other economic data, would require the government to lower its estimate of fourth-quarter 2006 U.S. economic growth from 3.5 percent currently.
"The numbers might slice a little off GDP. ... This week we also have retail sales and other data that could have an offsetting effect. So far it looks like GDP will get revised down 1.2 to 1.3 percentage points," said Doug Smith, chief economist for the Americas at Standard Chartered in New York.
Keith Hembre, chief economist with FAF Advisors in Minneapolis, also expected a downward revision in fourth-quarter gross domestic product.
"It didn't really pass the smell test in the first place. ... It looks like 2.5 percent now," Hembre said.
U.S. Treasury Secretary Henry Paulson and other Bush administration officials have recently credited trade for contributing more than 1.6 percentage points to U.S. economic growth in the fourth quarter.
The trade data help pushed the dollar lower against the euro and the yen. However, many traders were looking ahead to appearances by Federal Reserve Chairman Ben Bernanke before Congress on Wednesday and Thursday.
U.S. debt prices edged down before Bernanke's testimony, while stocks ended higher.
U.S. exports, which have benefited recently from stronger foreign economic growth and a weaker dollar, totaled a record $125.5 billion in December.
The same factors helped propel total exports in 2006 to a record $1.44 trillion, up 12.8 percent from the prior year. Exports grew faster than imports, which rose 10.5 percent in 2006 to $2.20 trillion.
The strong exports helped slow growth in the trade deficit from the blistering 17.3 percent pace in 2005.
"For the first time in nearly a decade, the growth rate of exports outpaced the growth rate of imports," U.S. Commerce Secretary Carlos Gutierrez said.
The United States expanded exports to 29 of its 30 largest trading partners in 2006, with growth of more than 20 percent to Germany, Brazil, China and Chile, Gutierrez said.
That performance validated Bush administration policies aimed at opening markets around the world, U.S. Trade Representative Susan Schwab said.
But labor federation AFL-CIO, one of the Bush administration's biggest critics on trade, said immediate congressional action was needed to reverse the trade gap.
"Every day we continue following the Bush administration's path on trade, we feed a dangerous, unsustainable deficit," AFL-CIO Secretary-Treasurer Richard Trumka said.
With average prices for imported oil a record $58.00 per barrel in 2006, U.S. imports of petroleum rose to a record $302.5 billion. However, the deficit in non-oil goods also was a record at $547.2 billion.
The politically sensitive trade gap with China expanded 15.4 percent to a record $232.5 billion in 2006, despite record U.S. exports to that country of $55.2 billion.
Imports from China surged 18.2 percent to a record $287.8 billion, ensuring that concerns about China's exchange rate and other government policies, which U.S. lawmakers and manufacturers believe unfairly aid Chinese companies, will remain a hot political topic in 2007.