US trade deficit hits record $60.3bn

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The Independent Online

The US trade deficit ballooned to a record $60.3bn (£32bn) in November, sending the dollar sharply lower on foreign exchange markets and threatening US growth projections for the closing quarter of 2004.

The US trade deficit ballooned to a record $60.3bn (£32bn) in November, sending the dollar sharply lower on foreign exchange markets and threatening US growth projections for the closing quarter of 2004.

The figures, announced yesterday by the Commerce Department, shocked analysts who had expected the deficit to decline slightly from October's $55.5bn. Instead that figure was revised upwards to $56bn, while November's shortfall was the biggest on record, thanks not only to the surging cost of imported oil, but also - and perhaps more ominously - to a drop in US exports.

The November returns mean the deficit for the first 11 months of 2004 topped $561bn, far greater than the record $496bn for the whole of 2003. They make it all but certain that the current account deficit, the broadest measure of US trade in goods and services, also hit a new peak last year. For the first three quarters of the 2004, that deficit ran at an annual rate of $635bn, or 5.6 per cent of GDP.

The huge imbalance reflects not only the increase in oil prices, which pushed oil imports to a record $13.4bn in November, but currency exchange rate distortions and much faster economic growth in the US than in Europe.

Although the expanded deficit may knock something of the US growth rate in the final quarter of 2004, the US economy continues to grow at 3.5 per cent annually, compared with projected eurozone expansion of 1.5 per cent this year. European demand for imports from the US is slack, despite the weak dollar, while the US continues to suck in imports from Europe and elsewhere.

As a result, US exporters have been helped relatively little by the 50 per cent slide of the dollar against the euro in the past three years. While strong US demand for consumer goods pushed imports up 1.3 per cent, exports dropped 2.3 per cent.

The real problem is Asia. The imbalance with China, which refuses to revalue the renminbi from its decade-old rate of 8.3 to the dollar, accounts for 25 per cent of the US deficit, while the bilateral deficit with Japan hit a record $7.3bn.

John Snow, the Treasury Secretary, yesterday reiterated the US commitment to a strong dollar but insisted Europe and Asia must do more to boost domestic growth, to boost imports and thus help curb the US deficit.

The record US deficit may prompt next month's meeting of the G7 finance ministers and central bank governors in London to call for exchange rate flexibility - a veiled plea for China to revalue its currency and Japan not to hold down the yen by excessive market intervention.

Meanwhile, the burgeoning US deficit contrasted with an unexpected narrowing in the UK's trade gap, which fell to £4.6bn in November from £5.0bn in October. That narrowing was helped by a 4.3 per cent surge in goods exports, driven particularly by sales of petroleum products and chemicals, the Office for National Statistics said. Analysts said the overall trend was still one of deterioration.

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