U.S. Trade Deficit Drops in December but Hits Record for 2004
In a February 10 press release, the department estimated the December trade deficit at $56.4 billion, down 4.9 percent from November's revised $59.3 billion deficit. The gap comprised a goods deficit of $60.6 billion and a services surplus of $4.2 billion.
December exports and imports both set records. Exports went up 3.2 percent to $100.2 billion while imports rose just 0.1 percent to $156.6 billion. The average price of a barrel of imported crude oil fell for the second month in a row from $41.15 in November to $36.63 in December, the lowest level since August. The price drop, the sharpest since 1991, came as December's temperatures warmed above normal in the United States.
For the year 2004 the deficit soared 24 percent to $617.7 billion from $496.5 billion in 2003 and $421.7 billion in 2002. Although exports grew 12.3 percent in 2004, almost three times faster than the year before, imports went up 16.3 percent. The trade deficit with China increased by 31 percent from 2003 to $162 billion, more than twice the next biggest bilateral deficit, that with Japan at $75.2 billion.
In testimony before the Senate Budget Committee, Secretary of the Treasury John Snow reiterated the Bush administration position that the deficit reflects the stronger performance of the U.S. economy relative to that of its trading partners, that higher incomes in the United States lead to higher imports.
Members of Congress are reacting to the soaring trade deficit by proposing drastic legislative measures. The day before the release of trade balance numbers Representative Bernie Sanders, an independent from Vermont, introduced with 61 co-sponsors in the House of Representatives a bill that would repeal permanent normal trade relations (PNTR), otherwise known as most-favored nation status, for China. PNTR was passed by Congress as part of the legislative package approving China's accession to the World Trade Organization (WTO).
"In industry after industry," Sanders said on the House floor, "corporate America is shifting our manufacturing plants, our good-paying jobs to China where desperate people are forced to work for wages as low as 20 cents an hour."
Two Senate Democrats, Senators Byron Dorgan of North Dakota and Hillary Clinton of New York, were expected February 10 to submit a legislative proposal to establish a statutory limit for the trade deficit and to require the administration to craft a plan to meet that limit.
In his testimony, Secretary Snow repeated his assertion that the trade deficit will come down when the United States starts borrowing less money from abroad, which it does in part to finance the federal government budget deficit. The administration has promised to cut the budget deficit by half by 2009. In addition, Snow said, trade partners have to buy more U.S. products and China has to move toward more flexible foreign exchange rates.
"It sure would be helpful if Japan and our other trading partners would grow faster," Snow said. "The third piece of the answer is getting the Chinese to move toward greater flexibility in their currency so their currency reflects market values."
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