US government in dock as trade gap rockets by Jitendra Joshi
Wed Feb 14, 2:39 AM ET



The US government's campaign to renew its power to accelerate trade pacts through a restive Congress is likely to have been hurt by news of another black hole in the country's trade balance.

Sky-high oil prices and Americans' insatiable hunger for Chinese goods drove the US trade deficit to a record high of 763.6 billion dollars in 2006, the Commerce Department said Tuesday.

The December gap alone was 61.2 billion dollars, up from 58.1 billion in November. It was the highest monthly total since September's 64.4 billion.

Economists said the deficit was likely to have peaked for now, with oil prices well down from all-time highs above 78 dollars a barrel reached in mid-2006.

But there is no sign of a peak to pressure on the US government to get tough against countries that stand accused of cheating their way to trade dominance, including China and Japan.

"Getting this Congress to renew Trade Promotion Authority (TPA) was already an uphill battle," University of Maryland economist Peter Morici said.

"The administration has to reconcile itself to the simple fact that until it fixes the exchange rate problem with China and Japan, it won't get what it wants from Congress to negotiate new trade powers," he said.

The trade report was a public relations nightmare for the US administration, which only on Monday was warning of a loss of prestige and prosperity unless TPA is renewed beyond its scheduled expiration on July 1.

"This could be one of the most important actions Congress will take in the coming months to sustain our country's prosperity at home and leadership in the international marketplace," US Trade Representative Susan Schwab said.

Under TPA, the administration can submit trade deals for accelerated approval by Congress in a straight "yes" or "no" vote.

If lawmakers regain the right to amend trade deals, they could play havoc with such prospective agreements as free-trade pacts with South Korea and Malaysia, and any global deal by the World Trade Organization.

But many members of Congress, especially in the resurgent Democratic party, are chomping at the bit to punish trading rivals like China with measures such as tariffs to curb a tidal wave of imports.

The US deficit with China exploded to a new high of 232.5 billion dollars in 2006, up from 201.5 billion the year before. The shortfall with Japan also hit a new high, at 88.4 billion dollars.

For many US lawmakers, both Asian countries are guilty of massaging the value of their currencies lower against the dollar, to give an artificial lift to their export competitiveness.

The administration has launched a potentially far-reaching WTO case against Chinese industrial subsidies. But the currency issue remains paramount for congressional critics.

The cost for US industry of the rising deficits has been three million jobs lost since 2001, according to the American Manufacturing Trade Action Coalition.

"The deficit will only worsen and the offshoring of key US industrial sectors will only accelerate unless Congress steps in and makes major changes," AMTAC executive director Auggie Tantillo said.

Treasury Secretary Henry Paulson, who has been leading US economic dialogue with Beijing, said the massive US trade imbalance would remain until "structural issues" including the Chinese currency rate are addressed.

"The rest of the world is only going to be patient for so long," he added.

But for many in the new Democratic-led Congress, patience has long worn out.

"The administration needs to move beyond words and take action now to reverse a trend that threatens our prospects for future economic growth," said Senator Charles Schumer (news, bio, voting record), chairman of the joint economic committee in Congress.

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