WASHINGTON – he U.S. trade deficit skyrocketed in 2005 to a record $725.8 billion, as American companies and consumers snapped up record levels of low-priced goods from China and high-priced oil from the Middle East, a U.S. government report on Friday showed.
The trade deficit, which has risen more or less steadily since 1991 when it was $30.7 billion, widened 17.5 percent in 2005 to set a record for the fourth year in a row.
A huge chunk of the deficit was with China alone. The trade shortfall with that country increased 24.5 percent to a record $201.6 billion. Imports of consumer and industrial goods like clothing, computers, televisions, toys, furniture, chemicals and engines from China hit a record $243.5 billion, swamping record U.S. exports to China of $41.8 billion.
The trade figures are expected to increase demands in Congress that China raise the value of its currency and take other steps to open its market to more U.S. goods.
On Thursday, two U.S. senators proposed punishing Beijing for "cheating" in international trade by revoking most-favored nation trade status and subjecting U.S. trade relations with China to an annual review as done in the 1980s and 1990s.
Democrats blamed the huge overall deficit on the Bush administration's "flawed trade policy."
"Experts all around the world agree that these astronomical trade deficits are not sustainable and threaten to disrupt the U.S. and global economies," Senate Democratic Leader Harry Reid said in a statement. "This administration has ignored the problem and continues to pursue a trade policy that puts special interests above the interests of American families."
President Bush called in his State of the Union speech for initiatives to boost the United States' ability to compete internationally and has proposed billions of dollars in new research spending to keep the country's innovative edge.
Bush administration officials, while agreeing the deficit should be reduced, argue it partly reflects stronger economic growth in the United States than abroad.
U.S. Treasury Secretary John Snow told Congress this week that reducing the trade gap was a "shared responsibility" that required increased savings in the United States, faster growth in Japan and the European Union and movement by China and other Asian economies toward more market-based exchange rates.
High oil prices also drove the deficit higher. The United States imported a record $175.6 billion of crude oil in 2005, paying a record average price of $46.78 per barrel. The trade gap with Saudi Arabia and other members of the Organization of Petroleum Exporting countries was a record $92.7 billion.
The December deficit totaled $65.7 billion, up 1.5 percent from a revised $64.7 billion in November, and in line with expectations before the report.
Both U.S. imports and exports set records in December in a sign of a strong consumer demand at home and improving growth in overseas markets that have lagged behind the United States.
U.S. exports increased 2.1 percent in December to $111.5 billion, led by record levels of capital goods, auto and auto parts and consumer goods.
Imports rose 1.9 percent to $177.2 billion with records in several categories, including capital goods, auto and auto parts and food, beverages and animal feed.
Financial markets mostly shrugged off the trade figures, which were expected to have little impact on estimates of weakening U.S. economic growth in the fourth quarter of 2005.
Meanwhile, forecasters said the U.S. economy would bounce back in the first three months of the year, but they trimmed their outlook for growth in 2006 as a whole.
Panelists surveyed in the Blue Chip Economic Indicators newsletter bumped up their projection for annualized gross domestic product growth in the first quarter to 4.1 percent from a prediction of 3.6 percent a month ago. That was well above the fourth quarter's anemic 1.1 percent growth pace.
The panelists cut their outlook for 2006 growth to 3.3 percent from 3.4 percent in January, predicting weaker growth in business spending than they expected a month ago.
The U.S. trade deficit would reach $1 trillion in 2007 if it continued to grow at 2005's pace. But Gary Hufbauer, a senior fellow with the Institute for International Economics, said he expected the trade deficit to level off in 2006.
"It's possible, but I think unlikely that we'll break a trillion" over the next several years, Hufbauer said. "The reason I would say it's leveling off is that foreign growth is doing better, whereas U.S. growth is slowing down a bit."
A further weakening of the U.S. dollar in 2006 should also give a boost to exports and trim import growth, he said.