WASHINGTON – The U.S. trade deficit (search) climbed to $58.3 billion in January, the second-highest level in history, as Americans' appetite for foreign consumer products and automobiles hit record highs. The deficit with China was pushed higher by a surge in textile shipments, reflecting the end of global quotas.
The Commerce Department (search) reported Friday that the January trade gap was 4.5 percent higher than December's $55.7 billion deficit and was just below the all-time high monthly deficit of $59.4 billion, recorded in November.
For all of last year, the U.S. trade gap surged by 24.3 percent to $617.1 billion, setting a record for the third straight year. Analysts believe that 2005 will also set a record, reflecting higher prices for imported oil and continued heavy demand by U.S. consumers for all things foreign.
The January deficit reflected a 0.4 percent rise in exports of goods and services, which climbed to a record high of $100.8 billion, demonstrating record sales of industrial supplies and U.S. cars and auto parts.
However, imports rose at an even faster pace of 1.9 percent in January, climbing to an all-time high of $159.1 billion. Imports of foreign cars and auto parts and consumer goods set records while imports of capital goods, everything from computers to airplanes, rose to the highest level in more than four years.
As usual, the largest deficit with a single country was recorded with China, an imbalance of $15.3 billion, the third biggest imbalance on record and up 7 percent from December. The January deficit with China was driven by a 33.6 percent surge in shipments of textiles (search), which rose to $1.05 billion, reflecting the elimination of global quotas.
The struggling U.S. textile industry fears that the lifting of these restraints will result in the loss of thousands more U.S. jobs and result in China dominating the global textile trade. U.S. manufacturers are asking the administration for increased protection against a surge in Chinese imports.
Critics point to the huge trade deficits as evidence that President Bush's (search) trade policies are not working and have cost America millions of lost jobs as U.S. manufacturing companies have moved production abroad to low-wage countries such as China.
The administration argues that the deficits reflect stronger growth in the United States, which has pushed up demand while economic growth has lagged in Europe and Japan.
The soaring trade deficit must be financed by foreigners willing to hold U.S. dollars in exchange for the products they sell to the United States. The concern has been that the trade deficit at some point could rise so far that foreigners become reluctant to hold dollar-denominated assets such as stocks and bonds.
Such a development could send stock prices plunging and U.S. interest rates soaring. The mere prospect of such a change has been enough to send the dollar tumbling in recent weeks, following remarks by officials in South Korea and Japan that at some point they might consider holding less in dollar reserves.
However, Federal Reserve Chairman Alan Greenspan (search) said in a speech Thursday night that he believed any such changes in dollar holdings would occur in an orderly fashion that would not disrupt U.S. financial markets.
The country exported $4.74 billion in various food products in January. However, imports of food products totaled $5.55 billion, giving the country a deficit of $81 million in food, a category it used to dominate in world trade.
Imports of foreign petroleum fell by 5.3 percent in January to $16.5 billion, reflecting a decline in world crude oil prices, which dipped to an average of $35.35 per barrel in January compared to $36.63 in December. However, crude oil prices in recent days have approached the record of more than $55 per barrel set last October, which means that America's foreign oil bill will most likely be headed higher in coming months.
After China, the United States recorded a record $6.15 billion deficit with Canada, the country's biggest trading partner, and a $6.21 billion deficit with Japan. The deficit with the 25-nation European Union was $8.1 billion, down from a December deficit of $10.3 billion.