AFP
Tuesday, February 13, 2007

WASHINGTON - Sky-high oil prices and Americans' insatiable hunger for Chinese goods drove the US trade deficit to a record high of 763.6 billion dollars in 2006, the government said.

The Commerce Department said the December gap alone was 61.2 billion, up from 58.1 billion in November. It was the highest monthly total since September's 64.4 billion.

Wachovia Securities economist Jason Schenker said the data for December were "dollar bearish and likely to shave some off of fourth-quarter GDP (gross domestic product)."

"But it's not likely to change Fed policy," he said. The Federal Reserve has held US interest rates steady since August.

The annual figure was up from 716.7 billion dollars in 2005, registering the fifth consecutive record-breaking year as oil prices struck new highs above 78 dollars in mid-2006.

Still, the rise in the annual deficit was only 6.5 percent, an improvement over the double-digit gains of the four previous years.

Exports rose 12.8 percent last year to 1.438 trillion dollars while imports grew 10.5 percent to 2.201 trillion.

One of the few bright spots in last year's trade picture was services, which registered their highest surplus since 2000 at 72.5 billion dollars.

The US deficit with China exploded to a new high of 232.5 billion dollars in 2006, up from 201.5 billion the year before, to account for nearly one-third of the total.

That could accentuate political protests as the US administration grapples to persuade China to move on trade disputes, including its currency exchange rate and market access for American goods.

University of Maryland business professor Peter Morici said the data will put Treasury Secretary Henry Paulson, who has been leading the dialogue with Beijing, "in a very difficult situation."

"What this means is that Paulson's policies toward China simply are not enough and he can expect a lot of heat from Congress on his China policy," Morici said.

The annual US deficit with Japan also hit a new high at 88.4 billion dollars, up 7.2 percent, which in turn is likely to intensify criticism among US lawmakers about the yen's weakness against the dollar.

But against the European Union, the US deficit fell 4.7 percent to 116.6 billion dollars over a year that saw the euro strengthen sharply against the dollar. The deficit with Canada also shrank.

The data came a day after top US leaders and a new coalition of business groups warned that the country will lose prosperity and prestige if Congress fails to renew the government's "fast-track" authority to adopt trade deals.

Under Trade Promotion Authority (TPA), the administration has the power to submit trade deals for accelerated approval by lawmakers in a straight "yes" or "no" vote, without amendment. The current legislation is due to expire on July 1 after five years.

"This could be one of the most important actions Congress will take in the coming months to sustain our country's prosperity at home and leadership in the international marketplace," US Trade Representative Susan Schwab said.

But Democrat Sander Levin, who chairs a key trade panel in the House of Representatives, demanded changes to the Bush administration's policies first.

Singling out countries such as China and Japan, Levin accused the administration of being "far too passive in enforcing trade agreements" and "in breaking down unfair barriers to US products."

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