WASHINGTON — The U.S. trade deficit soared to an all-time high of $725.8 billion in 2005, pushed upward by record imports of oil, food, cars and other consumer goods. The deficit with China hit an all-time high as did America’s deficits with Japan, Europe, OPEC, Canada, Mexico and South and Central America.
The Commerce Department reported Friday that the gap between what America sells abroad and what it imports rose to $725.8 billion last year, up by 17.5 percent from the previous record of $617.6 billion set in 2004.
It marked the fourth consecutive year that America’s trade deficit has set a record and was certain to spark increased debate in Congress over President Bush’s trade policies. Since mid-2000 the country has lost nearly 3 million manufacturing jobs and Democrats blame the administration’s policy of emphasizing free trade agreements.
Last year’s deficit reflected the fact that imports rose by 12.9 percent last year to an all-time high of $2 trillion, swamping a 5.7 percent increase in exports, which were up 5.7 percent to a record high of $1.27 trillion.
For December, the trade deficit edged up a slight 1.5 percent to $65.7 billion, the third highest monthly figure on record.
Bush, in an effort to counter the growing anxiety over America’s ability to compete with such rising economic powers as China and India, unveiled a new American Competitiveness Agenda in his State of the Union address to double government spending on basic research, extend tax breaks for company spending on research and hire thousands of new math and science teachers for the nation’s high schools.
But critics contend that the trade deficit will keep growing unless the administration takes a harder line against unfair trade practices in low-wage countries such as China, a country they contend has gained a huge advantage over America by artifically depressing the value of its currency, which makes Chinese goods cheaper for American consumers and American products more expensive in China.
The U.S. trade deficit with China rose to a record $201.6 billion last year, the highest deficit ever recorded with any country and 24.5 percent above the previous record of $161.9 billion set in 2004. Part of that increase reflected a 42.6 percent increase in imports of Chinese clothing and textiles, which soared at the beginning of the year after the removal of global quotas.
American manufacturers, arguing that the U.S. textile and clothing industries were losing thousands of jobs, got the administration to negotiate a three-year agreement with China to reimpose quotas in a number of categories.
The United States also recorded record deficits with Japan at $82.7 billion. Until it was surpassed by China in 2000, Japan was the country that had the largest trade gap each year with the United States.
America’s trade deficit set records with much of the rest of the world as well. Among those records was a $122.4 billion gap with the 25-nation European Union, a $92.7 billion deficit with the nations that belong to the Organization of Petroleum Exporting Countries, a $76.5 billion deficit with Canada and a $50.1 billion deficit with Mexico. Canada and Mexico are America’s partners in the North American Free Trade Agreement. The deficit with the countries of South and Central America rose to a record $50.7 billion last year.
A huge 39.4 percent jump in petroleum imports, which rose to $251.6 billion, was a major factor contributing to last year’s deficit increase. The price of those imports rose to an all-time high, reflecting tight global supplies. The United States was forced to import more oil in the fall after Hurricane Katrina caused widespread shutdowns of Gulf Coast production.
American consumers continued their love affair with all things foreign, pushing imports of cars, foreign food products and other consumer goods to all-time highs in 2005.
The rising trade deficits must be financed by increased borrowing from foreigners, who so far have been happy to sell us their products and hold U.S. dollars in payment which they invest in U.S. stock, bonds and other assets. The concern is that at some point foreigners will want to reduce their dollar holdings. If the change occurs at a rapid pace it could send the value of the dollar, U.S. stocks and bond prices all plunging.
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