U.S. trade gap reaches all-time high

updated 1:20 p.m. ET April 12, 2005

WASHINGTON - The U.S. trade deficit, aggravated by surging imports of oil and textiles, soared to an all-time high of $61.04 billion in February.

The Commerce Department said Tuesday that the February imbalance was up 4.3 percent from a $58.5 billion trade gap in January as a small $50 million rise in U.S. exports of goods and services was swamped by a $2.58 billion increase in imports.

The surging trade deficit is leading to an increase in protectionist pressures as American textile and clothing manufacturers are lobbying the administration to limit imports of Chinese textile and clothing goods to ward off a flood of products now that global quotas have expired.

For February, imports of textiles and clothing from China rose by 9.8 percent even though America’s overall trade gap with China actually narrowed to $13.9 billion, down by 9.2 percent from a January deficit of $15.3 billion. The improvement reflected an increase in U.S. exports to China and declines in other import categories outside of textiles.

For the first two months of this year, the trade deficit is running at an annual rate of $717.2 billion, a full $100 billion above the record imbalance of $617.1 billion set for all of 2004.

Wall Street was jolted by February’s record deficit, which was worse than had been expected.

Economists said the sharp deterioration in the trade deficit would trim economic growth in the January-March quarter, reflecting the fact that so much consumer demand is being met with foreign goods.

“Oil prices are surging and it is likely that we will see more trade deficit records set,” said Joel Naroff, chief economist at Naroff Economic Advisors.

Trade deficits of this magnitude have raised worries among economists about America’s ability to continue to attract the foreign financing needed to cover the shortfall between exports and imports. If foreigners decided to hold fewer dollar-denominated investments such as stocks and bonds, it could trigger steep declines in U.S. stock prices and a sharp increase in interest rates.

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