U.S. racks up record trade deficit in '05
$725.8 billion total is 17.5% increase over 2004's mark
David Armstrong, Chronicle Staff Writer
Saturday, February 11, 2006
The United States racked up a record-high trade deficit with the rest
of the world in 2005, setting off a political firestorm that's being
felt from Washington to Beijing, roiling U.S. manufacturers and
organized labor, and prompting Congress to consider new laws to rein in
the losses.
The $725.8 billion deficit, announced Friday by the Commerce
Department, was a 17.5 percent leap from 2004's then-record deficit of
$617.6 billion. The 2005 trade deficit equaled 5.8 percent of this
country's gross domestic product, up from 5.3 percent of GDP in 2004
and 4.5 percent in 2003.
The United States hasn't had a trade surplus since 1975.
Last year's imbalance was caused by the sharp rise in imported
petroleum products and increases in textiles, clothing, manufactured
goods and food from abroad, the Commerce Department reported. Even the
U.S. farm sector, traditionally a net exporter, recorded a $4 billion
deficit in 2005.
Some $201.6 billion of the nation's trade deficit was with China alone,
an all-time high for a trade deficit with any country. This gives new
energy to China's critics, who charge that the Asian giant deliberately
undervalues its currency to make its exports artificially cheap and
illegally subsidizes Chinese companies in violation of World Trade
Organization rules.
The huge trade deficits -- both with China and with the world as a
whole -- left economists, politicians and others debating over just
what the numbers mean in real-life terms for American workers and
consumers. There is by no means a consensus, especially given the
strong political opinions galvanized by trade, and the domestic agendas
attached to those opinions.
Broadly speaking, free-traders, including advocates of increasing trade
with China, say American consumers benefit from the flood of imports
from China and other low-cost producers by being able to load up on
consumer goods at low prices.
Free-trade critics say that the trade deficit hurts blue-collar
Americans by pushing them out of relatively well-paying manufacturing
jobs and into lower- paying service jobs. If the flood of cheap imports
could be dammed, American producers could retain workers at higher
wages and Americans would benefit by expanding their purchasing power,
they say.
"Were the trade deficit cut in half, GDP would increase by nearly $300
billion, or about $2,000 for every working American,'' said Peter
Morici, a business professor at the University of Maryland and a
frequent critic of U.S. trade policy.
"Productivity is at least 50 percent higher in industries that export
and compete with imports, and reducing the trade deficit and moving
workers into these industries would increase GDP,'' Morici said.
Consequently, "Workers' wages would not be lagging inflation, and
ordinary working Americans would more easily find jobs paying good
wages and offering decent benefits.''
Defenders of China trade counter that Americans gain more than they
lose by engaging Beijing economically. If wages are held down, they
say, savings in the form of lower prices put money in Americans'
pockets.
According to a study done last month for the U.S.-China Business
Council, a Washington organization that promotes business with Beijing,
U.S. trade and investment in China nudges this country's GDP higher and
lowers the prices Americans pay at the mall for imported TVs, clothes,
shoes, and other items.
The study concluded that robust trade with China funnels an average of
$1,000 in disposable income to each U.S. household every year.
But those figures, like so many others, are countered with other
numbers.
The U.S. Business and Industry Council, which represents small and
medium-size manufacturers, says that nearly 3 million U.S.
manufacturing jobs have been lost due to low-cost overseas outsourcing
and cheap imports from foreign countries since 2000.
The council's president, Kevin Kearns, blamed the problem on the Bush
and Clinton administrations' free-trade policies, and called for new
surcharges on imports from overseas.
The $201.6 billion trade deficit with China in 2005 was a sharp 24.5
percent jump from 2004's $161.9 billion gap, prompting critics of free
trade to concentrate their ire on that country. (Japan was second at
$82.7 billion, up 9.4 percent. Canada was third at $76.5 billion, up
15.1 percent.)
Against the backdrop of those numbers, another debate has emerged:
whether the statistics reflect the realities of trade and
manufacturing.
Beijing officials, who calculate trade statistics differently than U.S.
authorities do, have consistently said that the U.S. trade deficit is
billions of dollars smaller than Washington contends. Chinese
authorities, moreover, say that China serves merely as the place of
final assembly for goods made by multinational firms, including U.S.
companies, who take the profits from those products, subsequently
counted in U.S. trade statistics as Chinese.
On Thursday, the day before the trade deficit was announced, two
senators introduced a bill that would strip China of the normal trade
status it shares with nearly every other country in the world and
subject it to an annual congressional review of its trade policies.
"Particularly disturbing is the news that our trade deficit with China
is 2 1/2 times bigger than it was when we signed a (permanent normal)
trade agreement with them in 2000,'' said Sen. Byron Dorgan, D-N.D.,
who introduced the legislation with Sen. Lindsay Graham, R-S.C.
"By repealing it and going to a year-by-year analysis of China's trade
policies and an annual decision on what its trade status will be, we
will provide a powerful incentive for China to change its policies and
start trading with our country in a way that is fair to American
workers, American farmers and American manufacturers,'' Dorgan said in
a statement Friday.
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