Trade gap shrinks as auto, oil imports drop

/ Source: The Associated Press

The U.S. trade deficit unexpectedly shrank in January, reflecting a big drop in imports of oil and foreign cars. American exports also fell, a potential blow to hopes that the economic recovery will be aided this year by U.S. sales abroad.

The Commerce Department said that the trade deficit declined to $37.3 billion in January, a drop of 6.6 percent from a revised December deficit of $39.9 billion. Economists had been expected the deficit to widen to $41 billion.

U.S. exports dipped 0.3 percent, reflecting weaker sales of a wide variety of products from civilian aircraft and machinery to agricultural products. But imports dropped by a larger 1.7 percent as both oil and foreign cars saw big declines.

If the trade deficit held at January's level for an entire year, it would give the country an imbalance of $447.5 billion in 2010, up from a 2009 deficit of $378.6 billion, which had been the smallest trade gap in eight years. That improvement reflected a drop in global oil prices and a deep recession, which cut into demand for imported goods.

Economists believe the 2010 deficit will rise as a rebounding U.S. economy purchases more imports. However, the hope is that the U.S. recovery will be supported by strength in export sales as American manufacturers benefit from economic rebounds in other nations and a weaker dollar, which makes U.S. goods cheaper in foreign markets.

That expectation, however, has been clouded somewhat by a rise since December in the dollar's value against the euro, the common currency of 16 European countries. But economists believe that gain will not be large enough or last long enough to derail America's export prospects.

The Obama administration is also hoping to get a boost in exports from a fall in the dollar's value against the Chinese yuan. It has been lobbying China to allow the yuan to rise in value against the dollar, responding to complaints from American manufacturers that China is unfairly manipulating its currency by holding down the yuan's value to gain trade advantages.

China has held the yuan steady against the dollar for 18 months to help Chinese exporters withstand the global economic crisis. But the United States and other countries have been increasing pressure on China to allow its currency to resume rising in value now that the global economy is rebounding.

So far, the Chinese have made no moves to change its currency regime but private analysts believe such an action could happen this year, given that China's economy came through the global recession in better shape than other nations and its exports have begun to surge. China reported Wednesday that its exports rose in February by 45.7 percent from a year earlier.

The U.S. trade report showed that the U.S. deficit with China edged up by 0.9 percent in January to $18.3 billion even though imports from China fell to the lowest level since June.

The deficit with the European Union dropped by 56.3 percent in January to $2.8 billion, the lowest level with May. The big decline reflected a huge drop in imports of European autos. The deficit with Japan fell 27.3 percent to $3.3 billion, also the lowest level since May with the decline also attributed to a big drop in car imports.

The 0.3 percent drop in exports of goods and services left the total at $142.7 billion while imports fell to 1.7 percent to $180 billion.

While the dollar fell for much of 2009 against the euro, it has been rising in value since December. That rebound reflected all the worries over the debt problems of Greece, which uses the euro. If that trend continued, it could dampen U.S. export growth this year.

But many analysts believe the increase will not be large enough to derail the export gains they expect. However, they see imports rising as well as the U.S. economy rebounds.

A panel of 42 top forecasters for the National Association for Business Economics said in their latest projections that the U.S. trade deficit will rise to $437.5 billion this year.