Trade deficit soars to record $60.3 billion in November

THE BALTIMORE SUN

WASHINGTON - The U.S. trade deficit soared to a new high of $60.3 billion in November, the Commerce Department reported yesterday. The figure breaks all previous monthly records and confounds predictions that the deficit would diminish with the weakening of the dollar and the decline in the price of oil.

Instead, the trade gap has reached historic proportions, putting increased pressure on the dollar to drop even further.

The jump in the trade deficit showed a surprising weakening in exports across the board, from agricultural products to capital goods such as aircraft and semiconductors. Exports decreased to $95.6 billion in November from $97.8 billion in October.

The figures released by the Commerce Department showed that the deficit is on track to exceed $600 billion for 2004, up from $496.5 billion for the previous year. With November's figure it has already reached $561 billion.

Economists said that the trade deficit numbers were alarming, and they contended that several things would have to change if the trend were to be reversed. First, they say that Americans have to save more and that the United States has to sell more goods and services overseas. In addition, they say currency exchange rates need to be adjusted. They particularly point to China, whose currency is now tied to the dollar.

But persuading trade partners to adjust their policies to improve the United States' trade imbalance will be difficult at best. These same countries are underwriting America's debt by purchasing U.S. Treasuries.

The net debt position of the United States now stands at $2.4 trillion, a debt that is costing the United States roughly $333 a person a year in interest.

"A trade deficit of this magnitude is not good," said Richard DeKaser, chief economist at National City Corp. "The problem is how do you tell these countries like China to change when they are funding the U.S. government. We'd like the Chinese to change their currency rate and at the same time continue to lend to us."

As usual, the United States posted its largest deficit with China, at $16.6 billion. That was more than double the next largest deficits of $7.297 billion with Canada and $7.285 billion with Japan.

The administration said that the deficit showed the strength of the U.S. economy, not its weakness, as many economists contended.

Treasury Secretary John W. Snow said in a telephone interview that the deficit was a sign that the American economy "is growing faster than those of our trading partners in the Eurozone and in Japan."

"The economy is growing, expanding, creating jobs and disposable income, and that shows up in the demand for imports," Snow said.

He blamed the United States' wealthy trading partners for growing too slowly and failing to buy more American goods and services. He said that the Europeans and the Japanese needed to expand their economies, an issue that he said would be discussed at next month's meeting of the Group of Seven wealthy industrial nations.

Some analysts argued that Snow's comments showed that the administration was likely to do little to try to stop the fall of the dollar. "In reaction to today's release of record trade deficit figures, Treasury Secretary John Snow continued with his Rumpelstiltskin routine of characterizing disastrous economic news as if it were just the opposite," Peter D. Schiff, chief global strategist of Euro Pacific Capital Inc., said in a message to clients.

The Europeans also disagreed with Snow's analysis, saying it was not evident that Europeans would buy more American goods even if their economies expanded by another percentage point to match that of the United States.

Anthony Gooch, spokesman for the European Union in Washington, said: "There are many reasons why the United States is running its trade deficit, but if it produces American goods of quality and at a competitive price they will sell themselves. They always have, and they always will."

Few economists said they saw any immediate sign that the trend would reverse. The main remedies that they had hoped would help stabilize the deficit - lowering the value of the dollar and a fall in the price of oil - had failed.

"We now have the Grand Canyon of trade deficits, and we can't be certain it won't widen further, '' said Joel L. Naroff of Naroff Economic Advisors. "Even if foreign companies start raising prices, we could still keep buying their goods at higher prices."

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