Avid buying, upsurge in Chinese imports are big factors

By Elizabeth Becker
NEW YORK TIMES NEWS SERVICE

March 12, 2005

WASHINGTON – The United States' appetite for foreign imports broke all records in January, reaching $159.1 billion and contributing to a monthly trade deficit that is the second-highest on record. The $58.3 billion trade deficit defied predictions that a weakened dollar and lower oil prices would narrow the U.S. trade gap.

Instead, the Commerce Department said yesterday that American consumers continued to buy foreign-made goods at an eager pace – including cars, electronics and business equipment – raising the trade deficit 4.5 percent from $55.7 billion in December. January's trade figures included a 75 percent surge in Chinese textile and apparel shipments, reflecting the end to global quotas and the beginning of what some experts see as a future in which China supplies about 70 percent of the U.S. textile and apparel market.

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The Bush administration said yesterday that the latest trade figures should be seen as testimony to the strength of the U.S. economy and its role as an engine of global growth.

"We view these figures as an affirmation that we're growing faster than our trading partners by as much as 2 percent, and we need them to take steps so they can grow and buy our products," Rob Nichols, the spokesman for Treasury Secretary John W. Snow, said in an interview.

But Rep. Benjamin L. Cardin of Maryland, the ranking Democrat on the trade subcommittee of the House Ways and Means Committee, was far less sanguine. He said he would push for immediate action in Congress, beginning with safeguards to limit imports of textile goods from China. The limits, which had been approved by the administration, were blocked by a court injunction.

"We are obviously in a free fall here, with deficit after deficit, and it just cries out for action," Cardin said in an interview.

China, however, is also pushing along the global economy, spurring growth especially in Asia.

Yet while most other industrialized countries enjoy a trade surplus with China, the United States had a deficit of $15.3 billion in January, the largest on record for a single country. China accounted for a fourth of the trade shortfall in January. Among other major trading partners, the United States had a $6.2 billion deficit with Japan and $6.1 billion with Canada.

The imbalance with China has led to increasingly loud charges of unfair trading practices by that country, from hidden subsidies to undervaluing its currency.

Rep. Clay Shaw, R-Fla., who heads the trade subcommittee of the House Ways and Means Committee, said he planned to hold hearings on the trading practices of China.

"China is one of my top priorities," Shaw said. "We need to be concerned about China and some of their tactics."

As bad as the trade figures were for January, some analysts say the imbalance will grow.

"Most ominously, matters should get worse because of the jump in oil prices in February," said Ashraf Laidi, the chief currency analyst at the MG Financial Group in New York, who predicted that next month's deficit could hit $62 billion.

Analysts had hoped that a drop in the price of imported oil in January would help diminish the trade imbalance. The Commerce Department said the average price of imported oil was $35.35 a barrel in January, the lowest since July.

The weakened dollar was also expected to spur export growth, which it did by 0.4 percent, but not enough to offset the import growth of 1.9 percent.

The dollar continued to weaken yesterday, initially falling against the euro and the yen after the January trade figures were announced. It later recovered, and the dollar closed down 0.2 percent with the euro valued at $1.3453, compared with $1.3424 Thursday. Against the yen, the dollar was off 0.1 percent for the day, at 103.88 yen.

News of the deficit also weighed on the bond markets, where investors are worried that a weaker dollar might discourage foreign investment in Treasury securities. The yield on the Treasury's 10-year note rose to 4.54 percent, from 4.47 percent Thursday. That is the highest yield since July. The price of the 10-year note, which moves in the opposite direction, fell 19/32 to 95 22/32.

Joel L. Naroff, president of Naroff Economic Advisors Inc., said there were several reasons why the export figures were disappointing. Like the administration, he cited the fact that Europe and Japan were buying fewer goods because of slow economic growth. But Naroff said American companies seemed to be raising the prices of their goods for exports rather than taking advantage of the weaker dollar to make their products more attractive to foreign buyers.

"While that may help these companies' bottom lines in the near term, it is not going to mean the greater penetration into foreign markets that we were hoping for," Naroff said.

With no relief in sight, some analysts are suggesting there are deeper problems behind the trade deficit.

Thea M. Lea, the senior trade adviser for the AFL-CIO, said the administration should develop policies that encourage and reward companies for producing in the United States, as do China, Japan and European nations.

"To be a cutting-edge nation in this global economy," Lea said, "we need to take steps to shape taxes, improve research, examine trade policy and improve education to make it possible for our companies and our workers to succeed in the global marketplace."

Overall in January, U.S. exports rose $400 million, to $100.8 billion, mostly because of an increase in sales of services, like travel and intellectual property licenses, the Commerce Department said. But imports rose $2.9 billion to $159.1 billion, with much of the money being spent on automobiles and automobile parts, the department said.

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