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Trade Deficit Sets Record, $617 Billion
The New York Times
Published: February 11, 2005

WASHINGTON, Feb. 10 - The American trade deficit broke the $600 billion barrier in 2004, soaring to $617.7 billion, the Commerce Department reported on Thursday, but the gap narrowed in December in part because sharply lower oil prices cut the cost of energy imports.

The deficit now accounts for more than 5 percent of the American economy, a level that adds further pressure to forces pushing down the value of the dollar and increases the amount of debt held overseas.

For December, the gap between American exports and imports of goods and services fell 4.9 percent, to $56.4 billion, down from a revised deficit of $59.3 billion in November. The November deficit was originally reported at $60.3 billion.

Domestic manufacturers, labor unions and many Democrats say the huge trade deficit reflects the erosion of the American manufacturing base and a concurrent loss of jobs. The annual report showed that the United States lost ground last year, not only in manufacturing but also in advanced technology products and services, two of the country's strongest sectors.

The deficit in technology products grew to $37 billion last year while the surplus for services, including banking, insurance and investment, shrank to $48.5 billion, the lowest since 1991.

The Bush administration, by contrast, views the deficit through a different lens. Treasury Secretary John W. Snow said through a spokesman that the report showed that the American economy was growing faster than the economies of other advanced industrial nations. The imbalance, he said, reflects the ability of American consumers to buy more imports.

Officials also contend that the gap has widened because foreigners are eager to invest in the United States; the extra funds flowing in are one consequence of the growing dollars flowing out to pay for imports.

"We are importing more than those other economies, because we are creating more disposable income than they are," said Rob Nichols, chief spokesman at the Treasury Department. The annual deficit with China set a record at $162 billion, becoming the largest trade imbalance ever recorded by the United States with a single country. Democrats in Congress seized on the figure to repeat their demands that the administration push China to revalue its currency, which is blamed for the poor performance of American exports.

"I am tired of watching ships arrive at the Port of Baltimore filled with cargo for U.S. consumers and then leave empty," said Representative Benjamin L. Cardin of Maryland, the ranking Democrat on the trade subcommittee of the House Ways and Means Committee.

He said that five out of six ships delivering goods to the United States from China return home empty. And those with cargo are often carrying waste material, scrap metal or recyclable paper that are among the fastest-growing American exports to China.

American textile manufacturers and the biggest business organizations have asked the administration to bring China to the World Trade Organization for unfair trading practices that they say are adding to the trade deficit.

Peter Morici, professor of business at the University of Maryland, said the deficit was the "single most important tax on U.S. growth and burden on American working families."

Most of the other advanced industrial economies, including Germany, Japan and Canada, have overall trade surpluses, according to figures compiled by the International Monetary Fund. To help bring global trade into better balance, economists said, these wealthy nations would need to buy more American goods and services. At the same time, adjustments in the value of the dollar, especially with China, which fixes its currency against the dollar, are required to ease that process, they said.

As for the narrowing trade gap in December, some economists said the decline was mostly a result of the declining volume and cost of imported oil that month, while others pointed to the fall of the dollar, which makes American exports more attractive overseas.

"There is hope," said Joel L. Naroff, president of Naroff Economic Advisors. "We could be seeing some narrowing in the deficit this year and that should add to growth."

Dan Griswold, director of the Center for Trade Policy Studies at the Cato Institute, dismissed what he called "alarmist concerns about the size of the trade deficit."

He saw welcome news in the increase in exports in 2004 to $1.146 trillion, a figure that surpassed the previous peak set in 2000. Imports into the United States hit $1.764 trillion, or 54 percent more than exports.

But the recent decline in the dollar also indicates that private foreign lenders may be less willing to supply new credit to underwrite the deficit.

The 2004 deficit is 24.4 percent deeper than the gap in 2003, which had set the previous record with a deficit of $496 billion.