Posted on 02/15/2007 11:06:17 AM PST by Paul Ross
US trade deficit sets record again in ’06
AGENCIES[ THURSDAY, FEBRUARY 15, 2007 12:07:31 AM]
WASHINGTON: The US trade deficit hit a fifth straight annual record in 2006, driven by a record oil import bill and a flood of goods from China, a government report showed on Tuesday.
The Commerce Department said the trade gap expanded by 6.5% last year to an all-time high of $763.6 billion, as a record imports swamped record exports. The House of Representatives Democratic leaders seized on the mammoth trade deficit to demand fundamental changes in the US trade policy, beginning with stronger Bush administration action to tackle what they said were trade barriers and unfair trade practices in China, the European Union and Japan.
“The consequences of these persistent and massive trade deficits include not only failed businesses, displaced workers, lower real wages and rising inequality, but also permanent devastation of our communities,” House speaker Nancy Pelosi and other Democrats said in a letter to president George W Bush. The annual shortfall partly reflected a wider-than-expected December trade gap. That month, the deficit expanded 5.3% to $61.2 billion as oil prices rebounded and Americans imported record amounts of consumer goods and autos.
December marked the tenth time in 2006 that the monthly deficit exceeded $60 billion. The annual trade deficit totalled just $30.7 billion in 1991 before beginning its long gallop to current record levels. Economists said the larger-than-expected December trade gap, combined with other economic data, would require the government to lower its estimate of Q4 2006 US economic growth from 3.5% currently.
“The numbers may slice a little off the GDP. This week we also have retail sales and other data that could have an offsetting effect. So far it looks like the GDP will get revised down 1.2 to 1.3 percentage points,” said Doug Smith, chief economist for the Americas at Standard Chartered in New York.
Keith Hembre, chief economist with FAF Advisors in Minneapolis, also expected a downward revision in Q4 GDP. “It didn’t really pass the smell test in the first place. It looks like 2.5% now,” Mr Hembre said. US treasury secretary Henry Paulson and other Bush administration officials have recently credited trade for contributing more than 1.6 percentage points to US economic growth in Q4.
The trade data help pushed the dollar lower against the euro and the yen. However, many traders were looking ahead to appearances by Federal Reserve chairman Ben Bernanke before Congress on Wednesday and Thursday. US debt prices edged down before Bernanke’s testimony, while stocks ended higher. US exports, which have benefited recently from stronger foreign economic growth and a weaker dollar, totalled to $125.5 billion in December.
The same factors helped propel total exports in 2006 to a record $1.44 trillion, up 12.8% from the prior year. Exports grew faster than imports, which rose 10.5% in 2006 to $2.20 trillion. The strong exports helped slow growth in the trade deficit from the blistering 17.3% pace in 2005. “For the first time in nearly a decade, the growth rate of exports outpaced the growth rate of imports,” US commerce secretary Carlos Gutierrez said.
US expanded exports to 29 of its 30 largest trading partners in 2006, with growth of more than 20% to Germany, Brazil, China and Chile, Mr Gutierrez said.
That performance validated Bush administration policies aimed at opening markets around the world, US trade representative Susan Schwab said. But labour federation AFL-CIO, one of the Bush administration’s biggest critics on trade, said immediate congressional action was needed to reverse the trade gap.
“Every day we continue following the Bush administration’s path on trade, we feed a dangerous, unsustainable deficit,” AFL-CIO secretary-treasurer Richard Trumka said.
With average prices for imported oil a record $58.00 per barrel in 2006, US imports of petroleum rose to a record $302.5 billion. However, the deficit in non-oil goods also was a record at $547.2 billion.
The politically sensitive trade gap with China expanded 15.4% to a record $232.5 billion in 2006, despite record US exports to that country of $55.2 billion. Imports from China surged 18.2% to a record $287.8 billion, ensuring that concerns about China’s exchange rate and other government policies, which US lawmakers and manufacturers believe unfairly aid Chinese companies, will remain a hot political topic in 2007.
All Bush did was copy the Clintons...
The only sure thing is that Fast Track is DEAD.
We need Germany's trade surplus, +8% unemployment and 1% GDP growth! For the children.
There wouldn't be such a high oil imbalance if US companies could drill off shore or in Alaska. While those companies might sell oil on the open market the cost per barrel would come down.
You don't read, let alone comprehend. From the article:
“The numbers may slice a little off the GDP. This week we also have retail sales and other data that could have an offsetting effect. So far it looks like the GDP will get revised down 1.2 to 1.3 percentage points,” said Doug Smith, chief economist for the Americas at Standard Chartered in New York.Note, these points directly undermine some of your previous uneconomic contentions, i.e., you claimed that trade deficits don't lower GDP, when in fact, by definition, axiomatically they are required to.Keith Hembre, chief economist with FAF Advisors in Minneapolis, also expected a downward revision in Q4 GDP. “It didn’t really pass the smell test in the first place. It looks like 2.5% now,” Mr Hembre said. US treasury secretary Henry Paulson and other Bush administration officials have recently credited trade for contributing more than 1.6 percentage points to US economic growth in Q4.
The trade data help pushed the dollar lower against the euro and the yen
Note also your brave new world 3.5% GDP growth has gone up in a puff of red ink. It will be lucky to be 2.5% Not very impressive in view of the deficits PLURAL.
And then note the dollar decline. Caused by the Deficits. But, oh again you claim no link. Again, you and CATO need elementary economics lessons. The currency is declining. And declining.
Please post the formula for GDP and then I'll show how you are mistaken.
Note also your brave new world 3.5% GDP growth has gone up in a puff of red ink. It will be lucky to be 2.5%
So the analyst guesses. So what will that do to our 2006 GDP growth of about 3.4%?
Not very impressive in view of the deficits PLURAL.
+3% growth is not very impressive? Isn't the budget deficit falling? Why do the deficits PLURAL make +3% unimpressive? Germany has a trade surplus. Has had one for decades. Shouldn't their growth be higher than 1%? Higher than ours? Since a surplus adds to GDP?
And then note the dollar decline.
Over what time frame?
Caused by the Deficits.
Over what time frame?
Again, you and CATO need elementary economics lessons.
Coming from you, that's funny!
The currency is declining. And declining.
The dollar is up against the Yen, but that's impossible, we have a trade deficit with Japan. LOL!
Women, children and minorities hardest hit.
Millions of dead people in the streets attest to the horrors of free trade and trade deficits!
< / Willie Green>
Trade deficit is often mentioned together with FedGov. What has FedGov to do with this aside from ratifying trade treaties and levying excise taxes (or not)?
I can't wait to see Paul's formula for calculating GDP although I think Paul may prefer Japan's 10 year period of deflation and their >2% GDP growth over the past decade to Germany's ongoing problems. He may also wonder why a country with such a large and consistent trade surplus could have a national debt that's a whopping 170% of GDP.
It's a real challenge selling doom when so many metrics prove we have a solid economy that remains the envy of the world.
Perhaps we should throw him a lifeline? Economic Policy Institute
I have a trade deficit with the local supermarket!
Am I doomed?
Am I doomed?
Only if the supermarket is owned by foreigners. Or people who look like foreigners.
Can't read 2.5%? And that is at the high side. The other views would subtract at least 1.3% from GDP, and lower it to only 2.1% or so. Noticeably weaker and much less impressive, not that 3.5% is anyways.
And as for your material claim that the dollar is up against the yen, you inferred that was due to wonderful demand for U.S. the dollar. In fact, you failed to note that it wasn't market-driven...but the artifact of further foreign governmental manipulation. Not free market at all. Not free trade. Not no way. Not no how.
Take note of these pertinent paragraphs from the linked article, where China watches currency manipulation (which it is the king of the hill).... like a hawk:
Currently, the motive of the Japanese government to induce the depreciation of Japanese yen is crystal clear, that is, it hopes to increase exports through devaluation. Certain big powers and international organizations have also expressed tolerance of the depreciation of Japanese yen due to the worsening Japanese economic situation. A new motive for the Japanese government to induce the devaluation of Japanese yen is that it hopes, by means of which, to increase the cost of imports, thereby achieving its aim of raising the level of Japanese domestic prices and lifting itself out of the trap of deflation.
Hence, your contention doesn't withstand scrutiny. Never did.
+3% growth is not very impressive?
Not when it's actually only 2% apparently. And no, not when China is clipping along at 10%. Wake up and smell the coffee.
Germany has a trade surplus. Has had one for decades. Shouldn't their growth be higher than 1%?
They also have a huge welfare state burden called East Germany. But all of that story is not gloomy. Their savings rate DWARFS your brave new world economy. And despite you febrile scorn, savings are the real wealth. Not debt. At least Germany's growth, therefore, is real. They are adding to wealth. Not printing paper. Whereas the U.S. savings rate is negative:
Americans are spending everything they're making and more, pushing the national savings rate to the lowest point since the Great Depression.Soaring home prices apparently have convinced people they don't have to worry about saving, a belief that could be seriously tested as 78 million baby boomers begin to retire.
The Commerce Department reported Monday that Americans' personal savings fell into negative territory at minus 0.5 percent last year. That means that people not only spent all of their after-tax income last year but had to dip into previous savings or increase their borrowing.
The savings rate has been negative for an entire year only twice before _ in 1932 and 1933 _ two years when Americans were having to deplete savings to cope with the massive job layoffs and business failures caused by the Great Depression.
This time the reasons for the negative savings rate are vastly different. Americans are spending all their incomes and then some because they feel wealthier because of soaring value of their homes, which for many Americans is the largest investment they own.
But analysts cautioned that this behavior was risky at a time when 78 million Americans are on the verge of retirement. The baby boomers start turning 60 this year, which means they can begin retiring with Social Security in just two more years.
Analysts said with this huge wave of pending retirements, the savings rate should be going up rather than being on a steady decline over the past two decades. The savings rate stood at 10.8 percent of after-tax incomes in 1984 and has been declining steadily since that time. It was down to 1.8 percent in 2004 before turning negative last year, reports AP.
Don't understand the difference between the 4th quarter and the entire year?
Noticeably weaker and much less impressive, not that 3.5% is anyways.
3.5% isn't impressive? Still bad at math.
And as for your material claim that the dollar is up against the yen, you inferred that was due to wonderful demand for U.S. the dollar.
I didn't infer anything. I simply pointed out that despite the trade deficit with Japan, the dollar is stronger against the Yen. You're the one who thinks trade deficits mean the dollar must weaken.
Not when it's actually only 2% apparently.
Run the numbers for me, if you can. Current estimate for 2006 is 3.4%. 4th quarter is 3.5%. If the 4th quarter adjusts down to 2.5%, what will the entire year's growth be?
And no, not when China is clipping along at 10%.
US GDP increased nearly $375 billion in chained 2000 dollars last year. If China really grew 10% last year, that'd be less than $230 billion. Looks like our GDP is still much much larger.
Their savings rate DWARFS your brave new world economy. And despite you febrile scorn, savings are the real wealth.
Wow, high savings, low growth and high unemployment. Sounds perfect.
Whereas the U.S. savings rate is negative:
Interesting. What does it have to do with your poor grasp of math?
germany and the euros have those problems you describe because they have stiffled their internal economies, notably for services (which is what keeps US unemployment down - services, services, services). That's a separate discussion from their trade situation.
So our economy can do well even with a trade deficit? Other economies can do poorly, even with a surplus?
That's a separate discussion from their trade situation.
No, same discussion.
a PART of our economy can do well - but its a low multiplier part - services - more retail stores, more food service employment, etc, etc.
That low multiplier only gave us 3.4% GDP growth last year.
Oh yes, it's the GREAT DEPRESSION all over again....only worse! ;^)
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