With the US massing its military for a possible invasion, uncertainty over how a conflict would end has clouded markets for months.
Bush is projecting budget deficits of US$304 billion for the current fiscal year and US$307 billion next year, surpassing a 1992 record of US$290 billion in dollar terms. Over the next five years, he expects the budget shortfall to add up to more than US$1.08 trillion.
But the administration says these deficits are manageable, noting that in proportion to the size of the economy they would be well below the record level of 6 percent of gross domestic product during the Reagan administration in 1983.
The White House report also highlights the importance of free trade and urges China, which now accounts for a bigger portion of the US trade deficit than Japan, to follow WTO rules.
"With its new WTO obligations, China has now made a formal external commitment to a whole range of trade-related reforms," the report said.
"Failure to live up to these commitments will put Chinese exports at risk in other WTO members' markets, because members may enforce China's commitments through WTO dispute settlement proceedings and may retaliate if China refuses to cease its actions deemed WTO-inconsistent."
The report singles out Chinese anti-dumping procedures, saying they would be "carefully scrutinized by other WTO members for inconsistency with WTO rules."
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