Trade Deficit Hits Record As Industry Imports Rise

The U.S. trade deficit hit a record $763.6 billion last year, including apparel and textile imports that increased 2.6 percent, to 52.2 billion square meter equivalents valued at $93.3 billion.

WASHINGTON — The U.S. trade deficit hit a record $763.6 billion last year, including apparel and textile imports that increased 2.6 percent, to 52.2 billion square meter equivalents valued at $93.3 billion.

The deficit between how much more the U.S. buys from abroad than it sells grew 6.5 percent, the Commerce Department said Tuesday. China captured 35.7 percent of the apparel and textile import market and widened its trade gap in all goods by 15.4 percent, to $232.5 billion, the largest U.S. deficit ever with a single country.

House Democratic leaders, led by Speaker Nancy Pelosi (D., Calif.), used the release of the trade figures to send a letter to President Bush, urging the administration to provide a plan to Congress within 90 days that addresses rising deficits with China, Japan and the European Union, and how to lessen the impact on U.S. manufacturers and workers.

Democrats, who control Congress for the first time in 12 years, called for: aggressive steps to stop Japan and China from undervaluing their currencies, bringing an intellectual property rights violation case against China at the World Trade Organization, strengthening labor provisions in pending free trade agreements and expanding countervailing duty laws to allow petitions against subsidized exports from China that could lead to punitive tariffs.

“We ask you again to join us and develop a meaningful action plan that addresses the burgeoning deficit and starts the process of reversing the trends in job declines and wage stagnation,” the Democrats stated in the letter. While the leaders acknowledged positive steps the administration has taken, such as a recent WTO case against China on certain types of subsidies, the Democrats called for a “fundamental shift in U.S. policy.”

The letter came as Democrats began discussions in their caucus on whether to renew the President’s trade promotion authority, which expires June 30. The administration launched a lobbying campaign with the private sector Monday to push for renewal, which strips Congress of the ability to amend trade pacts.

The Democrats’ letter hit a nerve with administration officials, particularly in its timing. U.S. Trade Representative Susan Schwab is scheduled to testify on the trade agenda today before the House Ways & Means Committee.

This story first appeared in the February 14, 2007 issue of WWD.  Subscribe Today.

“We have had quiet conversations with Democrats, well before they took the majority, as well as Republicans, on the trade agenda and on problems and solutions,” said an administration official who requested anonymity. “To send a letter like this, as if there has been no dialogue, is somewhat disingenuous.”

The official pointed to some proposed avenues, such as imposing punitive tariffs on imports, which many argue would raise prices for consumers, or encouraging Americans to save more.

Many experts see the broader trade deficit as the result of macroeconomic factors, such as a low savings rate in the U.S. and different growth rates around the world. Others, such as Peter Morici, professor at the University of Maryland’s Robert H. Smith School of Business, see it as a direct result of trading and economic policies.

The deficit with China remains high because the country controls the value of its currency, the yuan, making Chinese exports artificially inexpensive, Morici said. Although Americans “may be getting cheap T-shirts at the Wal-Mart today, their children will be paying the Chinese interest forever,” he said. “It’s just as though you were living beyond your means. The bank will finance you for awhile, but sooner or later, the bank will call the loan.”

Nigel Gault, chief U.S. economist at Global Insight, wrote in a report, “The petroleum deficit widened by $42 billion in 2006, accounting for almost all of the increase in the overall deficit. If oil prices stay in the high $50s [or] low $60s [per barrel], then the bill for imported oil will fall sharply this year. And with foreign economic growth still looking strong and helping exports, the non-oil deficit will likely edge lower, too.”

The Commerce Department figures revealed that apparel and textile imports from China shot up 11 percent in 2006, to a total of 18.6 billion SME valued at $27.1 billion.

Excluding China, shipments from the rest of the world dropped 1.6 percent, indicating the emphasis U.S. importers place on China, despite quotas limiting shipments of 34 types of goods. Only 10.9 percent of China’s apparel and textile imports in 2006 were in one of those 34 categories, which include key products such as knit shirts and trousers, both of cotton.

Primarily, China’s growth last year came in goods not covered by quotas, including man-made fiber nightwear, headwear, shawls and scarves and cotton sheets.

Also posting significant increases in apparel and textile imports last year were India, up 13.7 percent, to 2.7 million SME, and Pakistan, up 8.4 percent, to 3.6 million SME. Continuing to lose ground were Canada, down 19 percent, to 2.4 million SME, and Mexico, off 11.8 percent, to 3.4 million SME.

In December, total apparel and textile imports inched up 0.5 percent from a year earlier, to 3.8 billion SME, valued at $7 billion. Leading the way was China, with a 25.4 percent jump, to 1.5 billion SME, worth $2.3 billion.