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U.S. trade gap swells to record $55.5 billion

/ Source: The Associated Press

America’s trade deficit swelled to an all-time high of $55.5 billion in October as imports — including those from China — surged to the loftiest levels on record. Skyrocketing crude-oil prices also contributed to the yawning trade gap.

The latest snapshot of trade activity, reported by the Commerce Department on Tuesday, showed the country’s trade imbalance widening by a sizable 8.9 percent in October from the previous month — despite the fact that U.S. exports registered their best month on record.

The growth in imports, however, dwarfed the pace of exports in October, producing another bloated trade gap. The trade deficit was much bigger than the $52.4 billion imbalance economists were forecasting.

Imports of goods and services climbed to a record high of $153.5 billion in October, representing a 3.4 percent increase from September.

The United States’ politically sensitive trade deficit with China clocked a record $16.8 billion as imports flowing from the country posted all-time highs.

“The shortfall with China grew for the eighth month in a row ... as Americans start to fill up stockings with Chinese-made toys, games, sporting goods, electronics and computer accessories,” said Sherry Cooper, chief economist at BMO Nesbitt Burns.

The Bush administration has been pressing China to let its currency, the yuan, be set in open markets. U.S. manufacturers claims Beijing’s currency policies give Chinese companies a big competitive advantage over U.S. companies.

Another factor in October’s trade deficit was surging prices for imported crude oil. The average price of crude oil soared to a record $41.79 a barrel — a whopping 11.1 percent increase from September’s price.

U.S. exports, meanwhile, rose by 0.6 percent in October from the previous month to a record $98.1 billion. Sales of U.S.-made industrial supplies to other countries totaled a record high of $18 billion. Exports of capital goods, including drilling equipment and airplanes, also gained ground.

In other economic news, the Federal Reserve reported that industrial production at the nation’s factories, mines and utilities rose by 0.3 percent in November, matching some economists’ expectations. In October, industrial production grew by 0.6 percent.

The percentage of plants’ operating capacity in use last month climbed to 77.6 percent, the highest reading since May 2001.

On the trade front, the Bush administration believes the best way to handle the mushrooming trade deficits is by getting other countries to remove trade barriers and open their markets to U.S. businesses.

But Democrats and trade unions argue that the president’s free-trade policies aren’t working and have contributed to the migration of jobs overseas. Critics contend that trade deals ought to include stronger protections for workers and to protect the environment.

The previous record high U.S. trade deficit of $55.3 billion was recorded in June.

Federal Reserve Chairman Alan Greenspan, in a speech last month, warned that swollen trade deficits eventually could threaten the economy by souring foreign appetites to invest in the United States. Thus far, that hasn’t happened, but policy-makers can’t be complacent, he said.

Persistent concerns in Europe over the U.S. trade and budget deficits has been a key factor in the U.S. dollar’s recent slid — on several occasions to record lows — against the euro, the currency used by 12 countries.

The value of the dollar, which had already been weakening, helps U.S. exporters and manufacturers because it makes their goods and services cheaper and more competitive to foreign buyers.

Although the administration espouses a “strong dollar” policy, it hasn’t taken specific action to break the dollar’s decline. Private economists say that’s because the administration is fine with what has so far been a relatively orderly decline in the dollar.

America’s trade deficit with Canada grew to $5.6 billion in October, a 7.8 percent increase from September. The United State’s trade imbalance with Mexico surged by 15.4 percent to $4.4 billion in October as imports from the country hit record highs.

The United State’s trade deficit with oil-producing nations, including Saudi Arabia and Venezuela, clocked a record $7.2 billion in October as imports from these countries hit all-time highs.

America’s deficit with Japan, however, narrowed in October to $5.9 billion as U.S. exports to Japan were the highest since March 2001.