Trade Gap Hits Record in October
A surge in oil imports and a flood of Chinese televisions, toys and computers helped to drive the U.S. trade deficit to an all-time high in October.
The Commerce Department reported Wednesday that the gap between what America sells overseas and what it imports rose by 4.4% to $68.9 billion, surpassing the old record of $66 billion set in September.
The U.S. incurred record deficits in October with most of its major trading partners, including China, the European Union, Canada and Mexico, a development that was certain to increase protectionist pressures in Congress, where many lawmakers are unhappy with Bush administration trade policies.
The worse-than-expected October performance was blamed in part on the Gulf Coast hurricanes, which curtailed domestic production of oil, chemicals and plastics, forcing companies to turn to overseas suppliers.
Nigel Gault, an economist at Global Insight, a forecasting firm in Lexington, Mass., said the sharp widening of the deficit would shave about 1.1 percentage points from economic growth in the final three months of the year, which he predicted would come in at around 3%.
Gault also forecast that this year’s trade deficit would hit $730 billion, far above the previous record of $617.6 billion set last year. He predicted that next year’s deficit would be an even worse $760 billion, before the deficit begins to improve in 2007.
Treasury Secretary John W. Snow said the key to improving the trade deficit was to get Europe and other major trading partners to boost their economic growth. That way, they could buy more U.S. exports.
Snow told reporters that America’s strong growth and low unemployment showed that the U.S. economy was now in a “sweet spot.” He spoke in a joint session with Commerce Secretary Carlos M. Gutierrez and Labor Secretary Elaine Chao in which the Cabinet members highlighted the president’s economic record.
Snow said the U.S. economy would grow by as much as 4% in 2006. “We expect the good economic trends to continue,” Snow said in an interview with Bloomberg News. Growth will be 3.5% to 4%, Snow said in response to a question.
“We’re looking at continued job creation, good productivity, expansion of the economy overall,” he said.
Analysts had expected the October deficit to improve because global oil prices retreated after setting record highs in early September.
The average price of a barrel of imported oil declined slightly to $56.29 in October, but the volume of shipments shot up as buyers turned to overseas suppliers following Gulf Coast production shutdowns. The total bill for imports in October hit a record of $25.8 billion, up 7.8% from September.
A surge of Chinese shipments of televisions, toys and computers delivered to store shelves for holiday shoppers pushed the U.S. deficit with China to a new monthly record of $20.5 billion. The deficit with China is running at an annual rate of $200 billion, far above last year’s record deficit of $162 billion.
Administration efforts to re-impose quotas to halt a flood of Chinese clothing and textiles coming into the U.S. appeared to be having an effect because these imports were down 10.9% in October.
For October, imports of all goods and services rose by 2.7% to an all-time high of $176.4 billion, led by the surge in oil shipments. U.S. exports also rose but by a smaller 1.7% to $107.5 billion, reflecting in part a rebound in sales of commercial aircraft after a strike ended at Boeing Co.
The U.S. set deficit records with a number of trading partners, including a $12.1-billion imbalance with the European Union, an $8.1-billion imbalance with Canada and a $4.8-billion deficit with Mexico.
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Bloomberg News was used in compiling this report.
