Sun, Mar 13, 2005 - Page 10 News List

US trade gap widens as imports surge

DEMAND Taken aback at the US trade deficit for January, which widened to US$53.3 billion, analysts said the situation could worsen if the US president does not step in

AFP , WASHINGTON

Americans' insatiable demand for imported goods drove the US trade deficit up to US$58.3 billion in January, the second-highest level on record, the US government reported on Friday.

Analysts predicted the deficit would soon hit new peaks and put more pressure on the ailing US dollar in the absence of action by President George W. Bush's administration or stronger growth in Europe and Japan.

The trade gap was up 4.7 percent from a revised US$55.7 billion in December, the Commerce Department said, and not far off the record deficit of US$59.3 billion seen in November.

Market watchers were taken aback by the data, having forecast the January shortfall in goods and services at US$56.8 billion.

"The US is still the engine of global growth and the trade deficit is a side-effect of that," commented Ethan Harris, chief US economist at Lehman Brothers.

"It's not, long term, a very healthy environment," he said, while predicting the deficit will only worsen if Bush continues to oversee a deterioration in both the current account and budget deficits.

Trade across US borders hit new highs in January, the Commerce Department said. Imports were up 1.9 percent to US$159.1 billion, much more than expected by economists, and exports gained 0.4 percent to US$100.8 billion.

Imports of consumer goods led the increase, rising US$2.0 billion, with automotive vehicles, parts and engines as well as capital goods accounting for much of the rest.

IXIS Corporate and Investment Bank economist Marie-Pierre Ripert said that for once, oil prices could not be blamed for the increasing US deficit, with imports of crude having declined 8.0 percent by value in January.

Instead, she said, the deficit "reflects the strength of the domestic demand."

"The trade deficit is likely to continue to widen in 2005 even if the dollar declines further," Ripert said.

The greenback has been falling against major world currencies due in part to investors fretting over the long-term economic impact of widening US deficits. The latest trade release depressed it even further.

The euro rose to US$1.3464 in late London trade from US$1.3417 just ahead of the news.

But equally, the US economy is gaining in strength compared to the lackluster performances of Europe and Japan, fuelling the demand for imports.

"With growth solid in the US, imports demand just keeps rising, but slower growth elsewhere is keeping export gains down," said Joel Naroff, chief economist at Naroff Economic Advisors.

He said the US economy and the dollar could face further pressure in the face of the "twin deficits" of the current account -- which includes trade and investment flows -- and the budget.

"And when the dollar rebounds, which it ultimately will, our trade position will only worsen," he said.

By region, the politically sensitive US trade deficit with China increased 7 percent to US$15.3 billion in January. Imports of cheap Chinese garments rose particularly strongly, making alarm bells ring in Washington.

"We are concerned about the impact of this increase on our trade and our industry," said Jim Leonard, deputy assistant secretary at the Commerce Department.

"We will raise this issue as part of our ongoing dialogue with the Chinese to reinforce US concerns over our textile trade disparity and to seek solutions," he said.

But the United States notched up improvements in its trade with other major partners. Its deficit with the 25-nation EU fell 21.3 percent to US$8.1 billion and with Japan it was down 9.3 percent at US$6.21 billion.

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