2007 Trade Deficit Dips 6.2% As Americans Buy Less

By David J. Lynch

The trade deficit fell last year for the first time since 2001 as Americans curtailed purchases of imported products and U.S. exports continued a year-long surge.

Imports in 2007 exceeded exports by $711.6billion, 6.2% less than a year earlier. December’s monthly deficit also was a smaller-than-expected $58.8 billion, down from November’s $63.1 billion, the Commerce Department said.

Most analysts said the shrinking trade deficit largely reflected the impact of a slowing economy on purchases of imported goods. Excluding foreign oil purchases, imports last year rose just 4.6%, well below the 11.5% increase recorded in 2006. Exports rose 12.2%, a slight dip from the 12.7% gain one year earlier.

“The U.S. is sliding into recession faster than other countries. So, obviously, we’re slowing down our imports faster than they’re slowing our exports,” said Gary Hufbauer, a trade specialist at the Peterson Institute for International Economics in Washington, D.C.

For the first time, China passed Canada as the No. 1 source of U.S. imports. Americans imported $340.1 billion of Chinese toys, furniture, drugs and other products last year.

Only Canada and Mexico bought more American products than China. But China’s $65.2billion in orders from American factories were dwarfed by the flood of Chinese-made products entering the USA. The resulting trade deficit of $256.3billion remains an irritant on Capitol Hill, where lawmakers in both parties have introduced legislation designed to compel China to change its trade and currency policies.

U.S. manufacturers say China keeps the yuan, its unit of currency, artificially undervalued, making its products less expensive in world markets. China has allowed the yuan to rise by more than 15% since July 2005, but prices of Chinese imports have barely increased over that same period, according to the Bureau of Labor Statistics.

“Swift action from Congress is needed to stanch the hemorrhaging of U.S. manufacturing jobs lost to predatory imports from China,” Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, an industry group, said in a statement.

U.S. exporters, meanwhile, continued to benefit from a falling dollar as exports rose for the 10th-consecutive month. Since 2002, the dollar has lost 24.6% of its value against a global basket of currencies and 37.1% against the euro.

Prospects for continued strong export sales are clouded, however, by forecasts of slowing global growth and an end to the dollar’s drop. That adds to worries over the economy’s ability to skirt recession since export gains last year accounted for 40% of U.S. economic growth. “In 2008, generally the global context will be a little less robust,” said economist Brad Setser of the Council on Foreign Relations. (c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.