[Mb-civic] Trade Gap Widens to More Than $55 Billion

[Michael Butler]

http://www.latimes.com/business/la-fi-tradegap15dec15.story

Trade Gap Widens to More Than $55 Billion

A larger-than-expected deficit hits a record and suggests that economic
growth may not be as strong as believed.
 By Bill Sing
 Times Staff Writer

 December 15, 2004

 The U.S. trade deficit widened nearly 9% to a record $55.5 billion in
October, the government reported Tuesday, raising further concerns about the
nation's habit of buying more from foreigners than it sells to them.

 The larger-than-expected gap, fueled by surging oil prices and record
imports from China, also suggested that U.S. economic growth might not be as
strong as believed.

 Although exports in October grew to a record ‹ thanks partly to the weak
greenback, which made U.S. goods cheaper overseas ‹ imports jumped even
more. 

 If the trend continues, the U.S. will continue to run up larger debts to
foreigners, threatening its future financial health, some experts said. That
could lead to further declines in the dollar, whose slide has accelerated in
recent weeks amid worries about swelling U.S. trade and budget deficits.

 Many experts said they saw no end in sight.

 "We're likely to see large trade deficits for months, if not years, into
the future," said Steven Wood, chief economist at Insight Economics in
Danville, Calif. "We Americans continue to have a huge appetite for
foreign-made goods and services."

 With imports 50% larger than exports, it will take a long time to reverse
the imbalance, Wood added.

 It's not that American exporters aren't doing their part.

 "We're in a massive hiring mode," said Gary Johnson, vice president of Ace
Clearwater Enterprises, an aerospace parts supplier in Torrance that is
enjoying strong demand for its aircraft components from Europe's Airbus, and
for its gas turbines from India and Southeast Asia.

 Ace is seeking more skilled welders, engineers and machinists, and so are
other manufacturers.

 "People are picking off employees," Johnson said.

 Unfortunately for the trade picture, mounting exports by companies like Ace
aren't enough to offset rising imports. One reason: the U.S. is simply
growing faster ‹ and thus buying more ‹ than most other developed nations.
Economic growth in Germany and Japan, for example, has been slowing.

 And it doesn't help that people in the U.S. are spending like there's no
tomorrow. Americans' savings rate in October dropped to 0.2% of disposable
income, its second-lowest level ever. By contrast, Europeans save as much as
10% of their take-home pay, while the Japanese sock away 11% to 12%,
economist Wood said.

 The bottom line, he said: "They lend to us, and we borrow and spend it."

 One of the few countries growing faster than the U.S. is China. But because
China's currency, the yuan, is pegged to the dollar, its products also have
become cheaper along with the falling greenback.

 The U.S. trade gap with China was a record $16.8 billion in October,
according to the Commerce Department figures released Tuesday.

 That China bulge will continue to widen until Beijing removes the currency
peg, or at least broadens the range in which the yuan floats against the
dollar, analysts said. Some predicted that the Chinese might finally give in
to political pressures and widen the range next year.

 "That will help the U.S. correct its trade imbalance and cause a rally in
the greenback," said Bernard Baumohl, executive director at the Economic
Outlook Group in Princeton, N.J.

 Inexpensive Chinese imports aren't entirely a bad thing. U.S. retailers
pass along those lower costs to consumers, keeping inflation down.

 Thanks to its imports of inexpensive components from China, Los
Angeles-based toy wholesaler Megatoys can do more assembly work here in
Southern California, Chief Executive Charles Woo said.

 That helps the company overcome shipping bottlenecks at the local ports,
while satisfying customers' growing demand for products that can be made and
shipped quickly. 

 "It's easier to do it here," he said.

 White House spokesman Scott McClellan suggested Tuesday that there might be
short-term relief from the bulging trade deficit, because higher prices for
imported oil were "a big factor" behind the October gap. Oil prices have
come down in recent weeks.

 "The most important thing for us to do is to continue to expand trade
around the world and open markets to American products and producers, and to
make sure they have a level playing field upon which to compete," McClellan
said. 

 Overall for October, the trade gap was 8.9% bigger than a revised deficit
of $50.9 billion in September, the Commerce Department said. The deficit for
the first 10 months of this year totaled $500.5 billion, surpassing the
record $496.5 billion for all of 2003.

 Imports hit a record $153.5 billion in October, versus an all-time high of
$98.1 billion for exports.

 Some economists said the surprisingly large trade deficit might prompt them
to slightly reduce their economic-growth forecasts for the fourth quarter,
because a higher-than-expected portion of consumer spending was going to
foreign, not U.S., companies.

 The next measure of the nation's ballooning foreign debt will come Thursday
with the government's release of the third-quarter current account deficit.
That statistic, which includes not only trade in goods but also services and
investments, was a record $166 billion in the second quarter and is now
approaching 6% of U.S. gross domestic product, another record.

 Not all economic data released Tuesday were negative. Output of U.S.
factories grew 0.3% in November, the Federal Reserve said in a separate
report. Although that was down from a revised 0.6% gain in October, it was
better than expected.

 "The manufacturing recovery remains on track," said John Engler, president
and chief executive of the National Assn. of Manufacturers in Washington.


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