Soaring oil prices and an insatiable demand for imports of every kind drove the US trade deficit to a record $725bn (£414bn) last year, prompting union demands for an import surcharge, and fresh pressure from Congress for China to revalue its currency.
The full figures for 2005, released yesterday by the Commerce Department, show that China was again the prime culprit. Its bilateral surplus, which has tripled since President George Bush took office in 2001, jumped last year to $202bn from $164bn in 2004.
Although December alone registered a modest decline in the China deficit, the month produced an overall deficit of $65.7bn, up from $64.7bn in November, and the third-worst monthly performance on record. Total exports rose 2.1 per cent to $111.5bn, but imports climbed 1.9 per cent to $177.2bn.
The total US trade deficit now amounts to about 6 per cent of the country's gross domestic product, while the current account deficit, generally regarded as the most comprehensive measure of US exchanges with the outside world, is higher still.
Thus far, the huge imbalance has had little effect on the dollar, which strengthened by 3.5 per cent during 2005 against a basket of currencies. This may have exacerbated the deficit, by making imports cheaper but boosting the price of US exports in foreign markets.
Thanks to heavy foreign buying of US bonds and government securities, the deficit has been relatively comfortably financed. But, some economists say, the deficit is depressing domestic growth by up to l per cent a year, and contributing to the loss of jobs to foreign suppliers.
This week the AFL-CIO labour union and a manufacturers' group called for a temporary surcharge on imports. That is unlikely to happen, but lawmakers on Capitol Hill have stepped up demands that China be classified officially as a "manipulator" of its currency.
The deficit may grow even further in 2006, especially if the price of oil continues to increase. The US relies on imported oil for more than 50 per cent of its supplies, and despite President Bush's warning in his latest State of the Union address about the country's "addiction" to oil, that dependency, if anything, will rise in the short term.
On the positive side, key export markets in Europe and Japan are likely to improve, as those economies perform more vigorously in 2006. But the US, where growth is forecast at between 3 and 3.5 per cent, is likely to again out-perform its main competitors next year.Reuse content