U.S. Trade Gap Hits Record $19.4 Billion
Americans’ insatiable appetite for imported goods, along with weak overseas demand for U.S. products, combined to produce a record $19.4-billion trade deficit in February, the Commerce Department said Tuesday.
The deficit has soared as the U.S. economy increasingly has become an island of prosperity amid a global slowdown. Economic growth here has meant a strong domestic market for imports, while the slowdown abroad has cut into offshore sales of U.S. producers.
“It’s a simple story. You have the U.S. economic train going fast and no one can stop it. On the other hand, economies in Latin America and Asia are slowing down or mired in recession,” said Fernando Losada, senior economist at ING Barings in New York.
But the size of February’s deficit, up from January’s revised deficit of $16.8 billion, also a record, exceeded expectations, mainly because the spending binge by U.S. consumers has exceeded anyone’s expectations.
Imports rose to $96 billion in February from $93.9 billion in January. Imported consumer goods, especially autos, led the way.
Much of the added imports came from Japan, Mexico and Europe, causing U.S. deficits with those regions to widen further.
But exports declined slightly to $76.6 billion from $77.1 billion in January, with most of the slippage due to a decline in airplane shipments from Boeing Co. Aircraft shipments alone fell by nearly $1 billion, adding to declines in food, automotive and industrial supplies.
“This is the flip side of a domestic economy that’s flying,” Salomon Smith Barney economist Brian Jones said.
The U.S. economy seems to be defying gravity and the problems of its trading partners. Observers have repeatedly had to upgrade their forecasts of U.S. economic activity.
Driving that growth is the estimated 6% surge in consumer spending so far this year, a reflection of high consumer confidence, low unemployment and $1 trillion in stock market profits over the quarter, said Bruce Steinberg, chief economist at Merrill Lynch in New York.
“As the U.S. economy continues to chug merrily along, others are hurting, so it shouldn’t come as a surprise there is a trade deficit,” said Brink Lindsey of the Cato Institute.
But there is a downside to continued deficits if they persist, which is likely. Some economists warn that the deficit is impeding U.S. domestic economic growth by pushing sales and jobs offshore.
“The trade sector is mitigating the strength of the U.S. economy,” Goldman Sachs economist John Youngdahl said.
Moreover, the growing imbalance has already rekindled protectionist sentiment in Congress. The House earlier this year passed a measure to restrict foreign steel imports.
Federal Reserve Chairman Alan Greenspan this month warned that growing protectionism threatens the country’s economic well-being.
But the near-record-low unemployment levels enjoyed by American workers has so far tended to defuse the anti-import lobby.
And the widening trade deficit has not yet weakened the U.S. dollar, which is a risk of widening trade gaps, said William Stevenson, senior portfolio manager at Montgomery Asset Management in San Francisco.
The global economic malaise has only made U.S. dollars more desirable to hold, he said.
For now, most economists are resigned to the deficit as an inevitable outgrowth of a global economy in which the U.S. is clearly lapping its trade partners. What’s needed to rekindle demand for U.S. goods is a global recovery.
The deficit with Japan, the second-biggest U.S. commercial partner behind Canada, widened to $5.3 billion in February from $4.7 billion in January and $5.3 billion in February 1998.
The deficit with Asia’s newly industrialized countries rose to $1.8 billion in February from $1.6 billion in January and $885 million in February 1998.
A narrowing of the deficit with China in February was good news for the Clinton administration’s efforts to strike a trade deal that would enable the Chinese to join the World Trade Organization.
But so far this year, the gap with China totals $9.5 billion, up sharply from $7.7 billion in the year-earlier period.
The deficit with Canada decreased to $2.4 billion in February. The deficit with Mexico widened to a record $1.8 billion. The deficit with Western Europe increased to $2.2 billion.
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Trade Deficit
The ballooning U.S. trade deficit reflects growing consumption of imported goods and a decline in exports. In billions of dollars:
February: -$19.4 billion
Source: Commerce Department
