2005’s Trade Gap Tops $725 Billion

The U.S. trade deficit skyrocketed in 2005 to a record $725.8 billion, as companies and consumers snapped up record levels of low-priced goods from China and high-priced oil from the Middle East, according to a government report released Friday.

The trade deficit, which has risen more or less steadily since 1991 when it was $30.7 billion, widened 17.5% 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% to a record $201.6 billion. Imports of 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 December deficit totaled $65.7 billion, up 1.5% from a revised $64.7 billion in November, and in line with expectations before the report.

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 (D-Nev.) 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. Administration officials, while agreeing the deficit should be reduced, argue it partly reflects stronger economic growth in the U.S. than abroad.

Treasury Secretary John W. Snow told Congress this week that reducing the trade gap was a “shared responsibility” that required increased savings in the U.S., 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 U.S. imported a record $175.6 billion of crude in 2005, paying a record average price of $46.78 a barrel. The trade gap with Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries was a record $92.7 billion.

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% in December to $111.5 billion, led by record levels of capital goods, autos and auto parts and consumer goods.

Imports rose 1.9% to $177.2 billion with records in several categories, including capital goods, autos and auto parts and food, beverages and animal feed.