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Record gap with China sends U.S. trade deficit soaring in August

Commerce Department says the overall shortfall in the exchange of goods and services jumped to $46.3 billion — with more than half of that coming from China.

October 15, 2010|By Don Lee, Los Angeles Times

Reporting From Washington — A record monthly trade deficit with China helped send the overall U.S. trade imbalance surging unexpectedly in August, prompting experts to shave their projections of economic growth and adding fuel to midterm election campaigns already filled with vitriol over the outsourcing of jobs and a rising Chinese economy.

The Commerce Department said the overall shortfall in the exchange of goods and services jumped to $46.3 billion — with more than half of that coming from China. The trade deficit this year through August has soared 43% to $335 billion from the same eight-month period last year.

The report came on the eve of the Treasury Department's scheduled semiannual report to Congress that could label China as a currency manipulator — a step the Obama administration has been reluctant to take despite the widely accepted view that Beijing has kept the yuan undervalued to support its export industries.

A weaker yuan makes Chinese products cheaper in the U.S. and other overseas markets.

Complaints about China's currency have grown louder in recent weeks amid international concerns about an outbreak of currency wars and the heated domestic political environment, especially over high unemployment. Just before leaving the Capitol to campaign, a large, bipartisan majority of lawmakers in the House approved a measure that could apply countervailing tariffs on Chinese goods.

Treasury officials declined to comment about the department's report. But with political pressure intensifying, the White House lately has sharpened its criticism of China's tight control of its currency, and Beijing has responded by letting the yuan appreciate at a faster pace. Since June it has risen 2.7% against the dollar.

Even so, some economists believe the yuan is still undervalued by 20% or more and argue that this distortion is a major factor in global trade imbalances that imperil future growth and hurt U.S. employment. Other analysts argue that the U.S. trade and economic problems are rooted more in America's weak savings habits and that China has become a convenient political target in tough times.

"There's no question that China has become the scapegoat," said Oded Shenkar, an Ohio State University management professor who specializes in China. That's especially so in states such as Ohio where unemployment is high and industrial employment has fallen sharply.

Shenkar said one recent campaign mailing he received showed a picture of a green-faced man with these words: "You're 53, you've given them 26 years of hard work, and now you find out they're sending your job to China."

Shenkar said there was a good chance the Obama administration would cite the Chinese for currency manipulation. "They're desperate, as far as the polls are showing, and the economy is pretty bad," he said.

But Clyde Prestowitz, a Commerce Department official in the Reagan administration, doesn't see much likelihood of that happening. The reason: "They have a lot of fish they want to fry with China, and not just economic fish."

Obama wants cooperation from Beijing in dealing with North Korea, Iran and other contentious geopolitical issues.

The latest trade data show U.S. exports continuing to recover from the recession. From January through August, American shipments of goods and services grew 18% from the same period a year earlier to $1.2 trillion. That's well on pace to meet Obama's goal of doubling exports in five years.

But over those same eight months, U.S. imports jumped more than 22% from a year earlier, to $1.5 trillion. The sharpest percentage increases were in imports of automobiles and related products, which soared 60%. The biggest share of American imports are oil and other industrial supplies, which rose 39% to $399.2 billion, and consumer goods, up 13% to $317.9 billion.

Through August, the bilateral trade deficit in goods with China was $173.4 billion, up 21% from a year earlier. But the U.S. also posted deficits this year with almost every major trading partner, including Canada, Mexico, Japan and Germany.

The widening trade shortfall slashed U.S. economic growth in the second quarter to an annualized rate of 1.7%.

After Thursday's report, forecasting firm Macroeconomic Advisers cut its third-quarter estimate of anemic growth in gross domestic product by 0.4 of a percentage point to a 1.2% annual pace.

Paul Dales, an economist at Capital Economics in Toronto, said he expected the overall U.S. trade deficit to continue to widen, though the sharp fall in the dollar should help U.S. exports.

On Thursday, the dollar slid against a number of currencies, triggered by Singapore's central bank decision to strengthen its currency to curb inflation amid faster growth prospects in Asia.

The Federal Reserve is expected to ease U.S. monetary policy by launching a new round of government bond purchases to stimulate economic activity.

don.lee@latimes.com

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