The US trade deficit soared to a record of US$489.4 billion last year, according to a federal report released on Friday, raising concerns about the problems such a large gap could create.
The deficit, which is the difference between the value of foreign goods and services purchased in this country and the amount of American goods and services sold overseas, is now the largest in history. Excluding the value of services, the deficit was US$549 billion.
"This is not only a record, it is a record by a great deal," said Richard DeKaser, an economist at National City Corp.
"We are developing a great reliance on foreign capital to pay for our debt, and it is clear that foreigners are losing confidence, that there is a greater reluctance to finance our trade deficit," he said.
To finance its trade deficits, the US has been borrowing record amounts from foreign investors and banks. The risk is that foreign investors could balk at continuing to lend the US$550 billion needed just to finance that deficit. That has not been a problem so far amid very low interest rates.
The International Monetary Fund warned in a report last month that, given the ballooning trade deficit, the US risked a loss in foreign confidence and that a quick, uncontrolled drop in the dollar could upset world markets.
The danger, according to the IMF report, is that the US' voracious appetite for borrowing could push up global interest rates and thus slow global investment and economic growth.
Alan Greenspan, the Federal Reserve chairman, added his voice to these concerns, telling the House Committee on Financial Services earlier this month that "given the already substantial accumulation of dollar-denominated debt, foreign investors, both private and official, may become less willing to absorb ever-growing claims on US residents."
The persistent rise in the trade deficit has confounded experts.
It shot up during the recent recession and even accompanied the decline in the dollar, which fell 14 percent against a trade-weighted basket of 40 currencies. Traditional economic theory holds that such events should trim a trade deficit.
"The easy answers of slower growth or letting the dollar decline aren't working, so the crisis is much deeper," said Robert Borosage, director of the Campaign for America's Future, a liberal public policy group. "You can't sustain a deficit of five percent of your GDP indefinitely."
The 2003 trade gap included the poorest performance ever in goods. The deficit for goods was US$549.4 billion, the highest on record. Services, which is the brightest side of the trade balance, showed a surplus of US$60 billion, but the smallest surplus since 1992.
Robert Scott, director of trade studies at the Economic Policy Institute, said the human consequences of the rising trade deficit can be seen in the reconfiguration of the job market.
"As a consequence of the trade deficit, people are being pushed out of well-paying jobs with benefits in manufacturing and into the poor-paying service jobs, often with no benefits," Scott said.
The US deficit with China rose to a record US$124 billion and to US$94.3 billion with the EU. It shrank by US$4 billion with Japan, to US$66 billion.
The deficit with China received the most attention. Imports from China are now 5.7 times the value of American exports to China, a gap that many experts say is caused by China's refusal to float its currency and to allow the price of its exports to rise.
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