Aug 12, 2005

Record Level of Imports and Surge in Chinese Textile Imports Push Trade Deficit Higher
By Martin Crutsinger
The Associated Press


WASHINGTON (AP) - The United States imported a record amount of foreign oil in June and shipments of Chinese clothing and textiles soared, too, pushing the nation's monthly trade deficit to the third-highest level in history.
The Commerce Department reported Friday that the June deficit jumped 6.1 percent to $55.8 billion, compared to a May deficit of $55.4 billion. The politically sensitive deficit with China also set a record, sent higher by a 39.2 percent surge in Chinese clothing and textile imports.

Analysts said the new report highlighted two of the biggest threats to the economy - soaring energy prices and the dangers that the widening trade gap with China could spawn a protectionist backlash in the United States.

"The higher global oil prices go, the bigger the check we have to write to foreigners and that will be a growing weight on economic growth," said Mark Zandi, chief economist at Economy.com.

He said he saw no way the deficit with China will be brought under control unless the Chinese agree to go much further than the tiny revaluation of their currency they announced last month.

"Without further revaluation, the trade gap with China is going to balloon and protectionist sentiment in this country will boil over," Zandi said.

Legislation has been introduced in both the House and Senate to slap 27.5 percent tariffs on all Chinese imports unless the Chinese go further to allow their currency, the yuan, to strengthen against the dollar. China announced last month that it was breaking its decade-long peg to the U.S. dollar but since that time has allowed the yuan to rise in value by only a small 2.1 percent.

American manufacturers contend that the Chinese currency is undervalued by as much as 40 percent, giving Chinese companies a tremendous price advantage in selling goods to the United States and erecting a huge barrier to U.S. sales in China.

Through the first six months of this year, the deficit with China is 32 percent higher than the same period in 2004, a year when the trade gap with China hit a record of $162 billion, the highest amount with any country.

Imports of clothing and textiles were up 39.2 percent in June from May and are 57.6 percent higher for the first six months of this year, compared to last year, reflecting the lifting of global textile and clothing quotas on Jan. 1. That helped to push the June deficit with China to a record $17.6 billion.

The U.S. textile industry says 25,000 jobs have been lost so far this year because of the surge in imports from China and they are appealing to President Bush for relief.

So far, the administration has re-imposed quotas on various types of trousers, shirts, underwear and socks. And the administration announced on Thursday that it would launch talks next week in San Francisco in an effort to get an agreement with the Chinese imposing comprehensive quotas, something that economists warn will drive up prices for American consumers.

The overall trade deficit is running at an annual rate of $686 billion this year, up from last year's record of $617.6 billion.

And analysts are forecasting that not only will this year's deficit set a new record but the trade gap in 2006 will be even higher, reflecting the rising oil bill, the surge in Chinese imports and a weak global economy that has hurt sales of U.S. exports.

In June, U.S. exports of goods and services did edge to a new record of $106.8 billion, up by $52 million, as sales of telecommunications equipment, aircraft engines and chemical fertilizers increased.

Imports, however, rose a much larger $3.44 billion to also set a record at $165.7 billion, reflecting an increase in both the price and volume of petroleum shipments and higher imports of toys, clothing and other consumer goods.

More than half of the trade deterioration in June reflected America's surging foreign oil bill, which hit a record high of $19.9 billion, an increase of 9.8 percent from the May level, with the average price per barrel of imported oil climbing to $44.40, the second highest level on record.

Analysts said the oil import figure will rise even higher, reflecting a continued surge in global oil prices, which set a new intraday trading record near $67 per barrel on Friday.

With the record trade deficits and the continued loss of jobs in manufacturing - declines that total 3 million since mid-2000 - the administration has found it harder to pursue its efforts of expanding trade by reaching new free trade agreements with other countries. But Bush did win passage last month by a slim two-vote margin of the Central American Free Trade Agreement.

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On the Net:

Trade report: http://www.census.gov/ft900

AP-ES-08-12-05 1551EDT

This story can be found at: http://ap.tbo.com/ap/breaking/MGB70HVUACE.html