Trade deficit hits record

WASHINGTON -- The U.S. trade deficit ballooned to an all-time high of $617.7 billion last year, pushed by soaring oil prices and Americans' insatiable appetite for everything foreign, from cars to toys and food.

The Commerce Department reported Thursday that the 2004 imbalance rose 24.4 percent from the previous year and marked the third year in a row that the deficit had set a record. The imbalance with China swelled by 30.5 percent to $162 billion, the highest ever with any country.

For December, the deficit actually shrank. But at $56.4 billion, it still was the second worst monthly showing ever, down 4.9 percent from $59.3 billion in November.

Democrats said the figures were evidence that President Bush's policy of seeking trade deals was not working. They said the 2.7 million manufacturing jobs the United States has lost over the past four years reflect in large part unfair trading practices by China and other countries.

Sen. Byron Dorgan, D-N.D., said the report was "devastating news for the American economy." House Democratic leader Nancy Pelosi of California said the deficits were undermining the U.S. manufacturing base.

Added John Sweeney, the AFL-CIO's president: "America is losing good jobs due to bad trade deals."

Sen. Charles Schumer, D-N.Y., said the imbalance with China showed the need for his legislation that would impose across-the-board tariffs of 27.5 percent on Chinese products unless Beijing stopped tightly linking its currency, the yuan, to the U.S. dollar.

American manufacturers says this policy has undervalued the yuan by as much as 40 percent, giving Chinese companies a huge competitive advantage.

Treasury Secretary John Snow told Congress on Thursday that he believed the administration's efforts to prod China to develop a more flexible currency system were bearing results.

America's major trading partners, he said, had to grow faster and the United States must work to boost national savings in order to dampen excess demand that is being met by foreign goods.

"It sure would be helpful if Japan and our other trading partners would grow faster," Snow said.

Private economists said the country's low savings rate was worsening because of the government's record budget deficits. They predicted the trade deficit for 2005 would set a record, but that the deterioration would begin to slow and lower deficit would result in 2006.

"The nation is hemorrhaging red ink and we are seeing the worst of it right now," said Mark Zandi, chief economist at Economy.com. "The trade deficit should stabilize this year and with a little bit of luck, it should start to improve in 2006."

Wall Street chose to focus on December's improvement in the deficit with investors hoping that the one-month narrowing is a harbinger of a better trade performance. The Dow Jones industrial average rose 85.50 points to close at 10,749.61.

For all of 2004, U.S. exports of goods and services rose 12.3 percent to $1.15 trillion. But imports rose at an even faster clip of 16.3 percent, setting a record of $1.76 trillion.

The demand for foreign goods was led by a 35.7 percent surge in foreign petroleum imports, which climbed to a record $180.7 billion. The increase reflected not only higher demand but also surging prices. For the whole year, the average per barrel price for imported crude was $34.47, compared with $26.98 in 2003.

Imports of foreign autos, industrial supplies and consumer goods all set records. So did imports of food products, which climbed to $62.17 billion.

U.S. exports of food products reached a record $56.3 billion. But because U.S. shipments abroad were lower than imports, the country recorded a $5.9 billion deficit in food. It was the third straight annual deficit in agriculture, which had been an important source for helping narrow the deficit in manufactured goods.

U.S. exports did climb to an all-time high. Shipments of U.S. food, autos and consumer goods set records, helped by a 15 percent decline in the value of the dollar over the past three years. A weaker dollar makes U.S. products cheaper and thus more competitive on overseas markets.

The deficit with China was up from a record of $124.1 billion. The United States also saw large increases in the deficits with Japan, at $75.2 billion, Canada at $65.8 billion and the 25-nation European Union, where the deficit rose to $110 billion.