Chinese imports fuel record US trade deficit

The US trade deficit soared to a record $61bn (£32bn) in February, a higher figure than expected by most analysts and one that can only strengthen Congressional calls for tariffs on Chinese imports unless Beijing revalues its currency.

The US trade deficit soared to a record $61bn (£32bn) in February, a higher figure than expected by most analysts and one that can only strengthen Congressional calls for tariffs on Chinese imports unless Beijing revalues its currency.

According to the Commerce Department, imports jumped 1.6 per cent to $161.5bn, fuelled by a jump in textile imports, and the ever-higher cost of imported oil, while exports were virtually static at $100.5bn.

The deficit outstripped January's $58.5bn and the previous monthly record of $59.4bn set in November 2004. The latest returns mean the trade deficit is running at an annual rate of $717bn, over 6 per cent of GDP, compared with last year's total deficit of $617bn.

Immediately after the news, the dollar actually rose slightly against the euro and sterling - but only because of fears that the surging deficit may boost the risk of inflation, and force the Federal Reserve to raise interest rates more quickly.

But the respite for the dollar could be brief. After the expiry of global quotas from 1 January, imports of textiles from China alone surged in February by 9.8 per cent, even though the overall trade deficit with China dropped to $13.9bn that month, from $15.3bn in January.

Under intense pressure from domestic clothing and textile manufacturers, the Bush administration is mulling whether to reimpose quotas on various items, to protect the US industry, now that rules which had curbed textile imports here for 30 years are no more.

Meanwhile the Senate is gearing up to vote on legislation which would impose a massive 27.5 per cent across-the-board import tariff on Chinese goods, unless the Beijing government revalues the renminbi. A separate bill introduced in the House of Representatives would allow the US to retaliate, by defining the renminbi's pegged rate against the dollar as a downward manipulation of the currency, equivalent to an illegal export subsidy.

The other factor in the trade imbalance is oil. Undeterred by the rising price of fuel oil and petrol at the pump, US imports of petroleum products jumped 10 per cent in February to $18.2bn, and the bill is likely to grow still heavier.