U.S. Trade Deficit Hits Record High

Surging oil prices and Chinese textile imports helped boost the U.S. trade deficit to a record $61 billion in February, the Commerce Department reported Tuesday, suggesting that economic growth this year wasn’t as robust as previously believed.

The report calls for tougher curbs on Chinese clothing imports and for Beijing to stop undervaluing its currency, which critics say gives its exports an unfair advantage in global markets.

Some analysts said the deficit primarily reflected a strong U.S. economy as American consumers continued to gobble up foreign goods while consumers in the sluggish European and Japanese economies couldn’t do much to reciprocate.

“The problem is we have an insatiable appetite for imports, especially from Asia,” said Steven A. Wood, chief economist at Insight Economics in Danville, Calif. “That continues to wreak havoc with the trade balance.”

Americans ultimately can’t keep buying more from abroad than they sell, Wood said. “Eventually, you’ll go deeper and deeper into debt, and that comes back to bite you.”

Also getting blame for the record trade gap was the rising price of imported oil. And with petroleum prices having leaped further in March, the trade deficit is expected to set another record.

The February deficit grew 4.3% from a revised $58.5 billion in January and was well above the consensus forecast of $59 billion. It topped the previous record of $59.4 billion set in November.

The basic culprit again: Imports grew faster than exports. Imports in February rose 1.6% to $161.5 billion, while exports gained 0.1% to $100.5 billion.

One factor behind the jump was ballooning American purchases of Chinese textiles and apparel, triggered by the Jan. 1 expiration of a global quota system that kept China’s market share artificially low. Under pressure from the U.S. textile industry, the Bush administration is considering imposing curbs on certain types of Chinese clothing products.

However, the U.S.’ overall deficit with China actually fell 9.2% in February from the previous month, although it was far higher than the year-earlier level.

Many analysts Tuesday lowered estimates for first-quarter U.S. economic growth as the higher-than-expected deficit suggested that American companies didn’t benefit as much from U.S. consumer spending. Ian Shepherdson, chief U.S. economist for High Frequency Economics in Valhalla, N.Y., cut his estimate to 3.5% from 4%.

Stocks initially slumped after Tuesday’s report but erased losses after newly released minutes from the Federal Reserve’s March 22 policy meeting suggested that the central bank might not raise rates as aggressively as feared.

Fed Chairman Alan Greenspan and others have suggested that a weak dollar would eventually reduce the trade gap by making U.S. exports cheaper and imports more expensive.

However, while the dollar has tumbled significantly against the euro, it hasn’t lost ground against the Chinese yuan, which is pegged to the greenback. That has kept the yuan’s value artificially low, making Chinese goods cheaper in overseas markets -- a key factor behind that nation’s export juggernaut.

“The current situation hurts countries playing by the rules and dangerously fans neoprotectionist embers,” said Frank Vargo, vice president for international economic affairs at the National Assn. of Manufacturers, which on Tuesday renewed its call for the Bush administration to prod Beijing into letting the yuan float.

Democrats and others renewed criticism of Bush administration trade policies and called for Congress to nix a proposed Central American Free Trade Agreement.

“Uncle Sam has been played for Uncle Sucker by incompetent trade negotiators, a failure to enforce trade agreements and by our trading partners who see the U.S. as a patsy,” said Sen. Byron L. Dorgan (D-N.D.), who is leading the congressional effort to defeat the Central American trade pact.

The White House defended its efforts. The trade gap reflected “the fact that the American economy has been doing better than other industrial economies and, as a result, we are importing more,” Treasury Department spokesman Robert Nichols said in a statement.

At Saturday’s meeting of finance officials from the Group of 7 major industrial countries, Treasury Secretary John W. Snow is expected to urge his European and Japanese counterparts to boost their nations’ economies.