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Trade Gap Exceeds $43 Billion

By Paul Blustein
Washington Post Staff Writer
Thursday, March 11, 2004; Page E02

The U.S. trade deficit widened to a record $43.1 billion in January, indicating that the trade gap will remain high during the presidential campaign.

The January trade figure, reported by the Commerce Department yesterday, reflected a decline in exports partly attributable to a 40 percent drop in shipments of meat and poultry to foreign markets, many of which barred U.S. beef after the detection of mad cow disease in Washington state. Exports fell 1.2 percent, to $89 billion, while imports dipped 0.5 percent, to $132.1 billion.

Exports are almost sure to rise as the cheap dollar makes U.S. goods more attractive overseas, economists said. But yesterday's data underscore how long it is likely to take before the trade deficit begins to narrow substantially, they said. Even though the weak dollar is starting to help, imports are so much greater than exports that the gap will stay wide for the foreseeable future and may well increase in the coming year, according to a number of forecasters.

"The U.S. is still sucking in a lot of stuff from abroad, so it's hard to keep the trade deficit stable" even if exports rise, said Robert Mellman, senior economist at J.P. Morgan Inc. in New York. "This is sort of a warning about that."

The report provided political fodder for Democrats looking for opportunities to criticize the administration's trade policies and job record. Rep. Sherrod Brown (D-Ohio), noting that the trade gap in 2003 was a record $489.4 billion, said in a written statement: "We're starting this year right where we ended last year, with a growing trade deficit that adds to American workers' anxiety."

Administration officials reject the suggestion that the trade deficit undermines the case for their free trade policies. Yesterday U.S. Trade Representative Robert B. Zoellick argued that the most important factor driving the imbalance is the faster growth in the United States compared with that in many other major trading partners. That means Americans are buying foreign goods at a fast pace, compared with the sale of U.S. goods overseas.

Economists generally agree that growth rates at home and abroad weigh heavily on the trade deficit. "The last time we saw a balance in the deficit, which was in the early 1990s, the U.S. economy was still in recession, the rest of the world was booming, and the dollar was weak," said Diane Swonk, an economist at Bank One in Chicago. "You needed all of those factors operating at once."

That helps explain why the trade deficit will probably continue to mount this year, Swonk said, despite the beneficial effect of the falling dollar on the competitiveness of U.S. goods. The greenback has fallen about 9 percent over the past year against other major currencies, and notwithstanding the mad-cow problem in January, the currency effect has helped boost exports, which rose in the fourth quarter by a 21 percent annual rate on inflation-adjusted terms. But "we're an economy that continues to spend a lot, and continues to grow faster than a lot of other economies. So exports are picking up but that just can't compensate" for the flood of imports, Swonk said.

The U.S. trade deficit with China, a politically sensitive figure, rose to $11.5 billion in January, up from $9.9 billion in December. China's overall trade is roughly in balance, but the enormous gap with the United States has become a lightning rod for complaints about Washington's economic relations with Beijing.


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