U.S. Trade Deficit Hit Highest Figure Ever in November

By ELIZABETH BECKER
and JOHN O'NEIL
NTimes.com

Published: January 12, 2005

WASHINGTON, Jan. 12 - The nation's trade deficit jumped sharply in November, rising to $60.3 billion, the highest figure ever and an increase of 7 percent over October's $56 billion gap, the Commerce Department reported today.

The increase puts the trade deficit on a pace to exceed $600 billion for 2004, up from $496.5 billion the year before.

Treasury Secretary John W. Snow said in a telephone interview that the growing trade deficit was a sign of the strength of the American economy rather than a weakness. "The economy is growing, expanding, creating jobs and disposable income and that shows up in the demand for imports," he said.

Mr. Snow put the responsibility for the trading deficit firmly on the wealthy trading partners of the United States, saying they had to buy more American products and services. He said he would tell his partners in the Group of 7 industrialized nations at a coming meeting that their economies had to grow faster to help the United States out of the current trade imbalance.

The new trade figures showed United States exports falling 2.3 percent in November, to $95.6 billion, while imports rose 1.3 percent, to $155.8 billion. The deficit in goods was $64.1 billion, up from $60.1 billion in October, while the country continued to run a small surplus in services - $3.8 billion, down from $4.1 billion the month before.

Economists interviewed today agreed that the figures reflected a low level of demand overseas but pointed as well to a continued willingness by American consumers to buy imports, even as a weakening dollar is nudging their prices up.

"These numbers are not good," said Drew Matus, the senior economist for Lehman Brothers. "They suggest that a lot of the pickup in consumer spending we saw was unfortunately not benefiting domestic producers but rather trickling out to economies elsewhere in the world."

The November figure exeeded the projections of economists surveyed by Bloomberg, who had projected a deficit of $54 billion.

The dollar fell sharply on news of the unexpectedly wide trade deficit, dropping to 102.29 Japanese yen by this afternoon, from 103.25 yen late Tuesday. The euro climbed to $1.3281 today from $1.3123 on Tuesday.Mark Vitner, senior economist at Wachovia, said that he was not surprised by the figure, which he said reflected changes in currency values more than changes in actual exchanges of goods.

The dollar's fall has made imports more expensive, but not by enough to slow down their sales or to lead to a resurgence of domestic manufacturing, he said.

"We've seen a tremendous increase in the price of imports from Canada, Europe and Japan simply because when our currency drops it raises the prices of imports," he said.

Those three areas represented the largest increases in the trade imbalance, according to Commerce Department figures. The deficit with the European Union rose to $10.5 billion from $9.3 billion. The deficit with Canada widened to $7.3 billion in November from $5.7 billion in October. And the deficit with Japan rose to $7.3 billion from $5.9 billion.

The nation's largest trade imbalance by far is with China, and while November saw a slight improvement - to $16.6 billion, from $16.8 billion in October - the gap remains worrisome both to economists and to members of the Bush Administration. Commerce Secretary Donald L. Evans, in Beijing on a mission to persuade China to take steps to address the imbalance, warned in a speech today that the deficit is fueling tensions between the two countries.

"When China's leaders fail to produce results on the points of friction in our trading relationship, their failure only empowers those critics within the U.S. political system," Mr. Evans said in a speech to the American Chamber of Commerce in Beijing, Bloomberg News reported.

Mr. Evans's appeal today underscored the extent to which the trade imbalance is becoming a troubling political as well as economic issue. A report issued on Tuesday by a Congressionally appointed panel said that without the trade deficit with China, the United States would have 1.5 million more jobs than it does today. China on Tuesday released figures showing that its overall trade surplus rose to a record $11.1 billion in December, a trend that has let it accumulate huge reserves of dollars.

China has pegged its currency, the yuan, to the dollar, meaning that the dollar's fall has not raised the price of Chinese goods. Officials in Washington have lobbied China to let its currency appreciate, but Mr. Vitner said that the chances of such a change are low.

Noting that the Chinese leadership has so far resisted revaluing the yuan, Mr. Vitner said that "if they were going to revaluate, any move is likely to be extremely small."

"If you have a change of 5 percent or less, Chinese goods are still going to be awfully competitive," he said. "Until you see global economic growth improving you're probably not going to see much improvement in the trade balance."

Mr. Matus of Lehman Brothers agreed. The drop in the dollar so far will not be enough to bring down the deficit, he said. "One of two things has to happen: either the dollar has to fall more and make things more expensive to consumers, or overseas demand has to pick up sharply," he said.

Elizabeth Becker reported from Washington for this article, and John O'Neil from New York.