Trade Chasm Set Unwanted Record in '04; Gap Narrowed in December, But Annual Figure Ballooned
The U.S. trade deficit narrowed in December but was still the second-highest monthly figure ever. And that lifted the deficit for 2004 to $617.7 billion -- an all-time high that shattered the previous record, set in 2003, by 24 percent.</br></br>The trade report, issued yesterday by the Commerce Department, capped a year in which the voracious demand by Americans for imported goods drove the deficit to proportions all but unheard of for a major industrial country -- 5.3 percent of gross domestic product, up from 4.5 percent the year before. The widening gap has deepened worries that the United States is growing dangerously dependent on the capital lent by foreigners to cover the cost of the products they sell to Americans.</br></br>The December deficit decline to $56.4 billion from a revised record of $59.3 billion in November offered some hope that the trade gap's relentless surge might abate in coming months. Federal Reserve Board Chairman Alan Greenspan said last week that the deficit may soon start leveling off and possibly even shrink. Greenspan cited the dollar's fall against other currencies, which makes U.S.-made goods more competitive with products made abroad.</br></br>But yesterday's report offered insight into why a turnaround may be a long way off, because as the Commerce summary noted, imports increased nearly twice as much as exports last year. That is the opposite of what must happen for the deficit to narrow. Since the $1.764 trillion that the United States imported in 2004 is so much greater than the $1.146 trillion that it shipped abroad, exports must grow much faster than imports to close the gap.</br></br>"The U.S. trade deficit narrowed sharply, but let's not get carried away," said Joel Naroff of Naroff Economic Advisors, in a report to clients. "The level is still the second highest we have ever recorded . . . the deficit is still way too wide."