To no one’s surprise, the U.S. trade deficit — the excess of imports over exports — set a new record last year of $617.7 billion, almost a fourth again higher than 2003's record imbalance.
It sounds like a lot — half again what the Bush administration wants to spend on defense next year — but it has to be seen in the context of an American economy approaching $12.4 trillion a year. Like most economic statistics, it cuts both ways.
The U.S. economy is not only the world’s largest and, with regard to imports, freest, but it is growing faster than those of most of our trading partners. That makes us a natural magnet for goods.
Some of what we import we have to have — oil, for example. Thanks to a combination of high demand and high prices, oil imports surged almost 36 percent to $180.7 billion. And some of it is stuff we want — foreign cars, consumer goods and food. By the same token, U.S. exports, fueled by a cheaper dollar, rose 12.3 percent to a record $1.15 trillion.
At one time there was great worry about our trade imbalance with Japan. Now China is the big culprit, with whom we have a record and fast-growing trade deficit of $162 billion, up 30 percent. Japan has fallen to third at $75.2 billion, after the European Union at $110 billion.
Within limits, a weaker dollar will offer some self-correction, making imports more dear and exports cheaper. And there are trade issues with China — obstacles to market entry and a currency many believe is deliberately undervalued — that, if resolved, would help improve the picture.
The real unknown in the trade equation is the willingness of foreigners to lend us money to cover our trade and budget deficits. They will as long as the U.S. economy remains strong and we appear serious about attacking the budget deficits. The economy looks good, but let’s hope they don’t read President Bush’s new budget too closely.