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US trade deficit falls, but China gap hits record

AFP , WASHINGTON

The US trade deficit narrowed last year for the first time in six years, as rising exports supported by a weak dollar helped offset a record gap with China, data showed on Thursday.

The trade gap fell to US$711.6 billion from US$758.5 billion in 2006, the US Commerce Department reported.

Blighting the improved trade picture was a persistently high deficit with China, which once again sparked outrage over Beijing's alleged currency manipulation and the loss of US manufacturing jobs.

Last year's 6.2 percent decline in the deficit followed five consecutive years of record peaks and was caused mainly by feeble US economic growth and a declining dollar that blunted demand for imports.

It marked the biggest reduction in the trade deficit since 1991, when the US economy was also slowing, and narrowed the trade gap to 5.1 percent of GDP last year from 5.7 percent in 2006.

Exports of US goods and services shot up 12.2 percent from 2006 to US$1.62 trillion, while imports climbed a more modest 5.9 percent to US$2.33 trillion.

Foreign demand

"The rise in exports indicates that foreign demand for US goods remains robust, while import weakness reflects soft US domestic demand and the lower value of the US dollar," said Peter Kretzmer, senior economist at Bank of America.

Economists expect that sluggishness in the US economy, mired in the worst housing slump in several decades and a credit crunch, will drag down global growth, thus reducing demand for US exports despite the dollar's weakness.

"US domestic demand is weakening further but activity was boosted by global demand. How long that will last for is the question," said Andrew Busch, an analyst at BMO Capital Markets.

* Annual trade deficit:

2007: US$711.6 billion (5.1 percent of GDP).

2006: US$758.5 billion (5.7 percent of GDP).

* Exports for 2007: US$1.62 trillion (up 12.2 percent from 2006).

* Imports for 2007: US$2.33 trillion (up 5.9 percent).

* Last year's trade deficit with China: US$256.3 billion (up 10.2 percent).

Source: AP


Relief on the trade front allayed some recession fears. The government has taken a series of monetary and fiscal steps since the subprime, or high-risk, mortgage crisis flared in August, to boost GDP growth that slowed to a 0.6 percent crawl in the fourth quarter.

The Fed has slashed interest rates and on Wednesday US President George W. Bush signed a US$168 billion stimulus package to ward off recession.

"The narrowing of the US trade deficit is providing a valuable offset to the US's slower rate of domestic spending, thereby helps to keep the US out of a recession," John Lonski, chief economist at Moody's Investors Service, told reporters.

But critics pointed to the ballooning trade deficit with China, which jumped 10.2 percent last year to a record US$256.3 billion as Americans snatched up cheap Chinese-made goods. They claim China is keeping its yuan currency undervalued to maintain an illegal trade advantage.

Auggie Tantillo, the head of the American Manufacturing Trade Action Coalition, a lobby group for various industries, warned: "Swift action from Congress is needed to stanch the hemorrhaging of US manufacturing jobs lost to predatory imports from China."

December surprise

The trade deficit in December narrowed to US$58.8 billion from a virtually unrevised US$63.1 billion in November, beating market expectations of US$61.5 billion.

The decline came on a 1.5 percent rise in exports, to US$144.3 billion, and a 1.1 percent fall in imports, to US$203.1 billion, mainly in auto imports.

The average price of an imported barrel of oil was up 3.9 percent, helping produce record total petroleum imports of US$36 billion, about half the monthly deficit.

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