Trade deficit drops to $39.9B; lowest in 6 years

By: By MARTIN CRUTSINGER, AP Economics Writer
By: By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON (AP) - The U.S. trade deficit fell to the lowest level in nearly six years in December as the recession depressed demand for imports. The trade deficit in 2008 fell for a second straight year and economists expect an even bigger decline this year.

The Commerce Department said Wednesday that the deficit in December fell 4 percent to $39.9 billion, from $41.6 billion in November. It was slightly higher than the $36 billion deficit economists expected.

For the year, the deficit shrank by 3.3 percent to $677.1 billion. It was the second straight annual decline after five straight years of record deficits.

The 2008 imbalance was the lowest annual total since 2004, and many economists believe the deficit for 2009 will be half the size of last year's gap. However, the improvement is due to a painful recession that is cutting demand for imports of oil, autos and other foreign-made products.

Nigel Gault, an economist at IHS Global Insight, expects the trade deficit will shrink to $308 billion this year, based on U.S. demand for imports falling faster than global demand for exports.

The expectation that the trade deficit will plunge 55 percent this year also is based on a forecast that oil prices, which averaged about $100 per barrel in 2008, will drop to just $37 per barrel this year, Gault said. But he expects the trade deficit will rise in 2010, reflecting a resumption of growth in the United States and higher oil prices.

The politically sensitive deficit with China continued rising in 2008, hitting an all-time high of $266.3 billion, the highest imbalance ever recorded with any country. The deficit with China has set records throughout the decade, triggering a political backlash with growing calls for trade sanctions against Beijing for what critics contend are unfair trade practices that have cost American manufacturing jobs.

Still, Chinese exports are not immune to the effects of recession. China's exports plunged in January amid collapsing global demand, according to customs data released Tuesday. Exports fell 17.5 percent last month compared with the year-ago period, and a sharper drop than December's 2.8 percent.

The Bush administration resisted pressure in Congress to brand China a currency manipulator, a designation that could lead to trade sanctions. However, Treasury Secretary Timothy Geithner told Congress last month that President Barack Obama believes China is manipulating its currency, raising the possibility that the new administration will take a harder line.

During the presidential campaign, Obama pledged to do a better job than Republicans at protecting American workers from unfair trade practices. There are concerns the U.S. recession and downturns in many other countries could lead to rising protectionism worldwide that will make the global recession worse.

Many large U.S. companies already have announced layoffs because of falling demand for their exports, including Boeing and Caterpillar Inc.

American auto companies also are facing hard times because of slumping demand. General Motors Corp. and Chrysler LLC were forced to take billions in government bailouts to buy time to restructure their businesses.

Still, the back-to-back annual declines in the U.S. trade deficit were the first time that has occurred since it fell for four straight years in the late 1980s and early 1990s.

The $39.9 billion December imbalance was the smallest deficit since the gap totaled $39.7 billion in February 2003.

Exports of U.S. goods and services in December dropped 6 percent to $133.8 billion, the fifth straight monthly decline. Sales of farm products, domestic cars, medical equipment and computers all fell.

Exports of commercial aircraft rose in December, reflecting a rebound after the end of a strike at Boeing Co. But economists believe exports will continue to fall in coming months as the recession that began in the U.S. spreads to more countries, crimping demand for American products.

Imports dropped 5.5 percent in December to $173.7 billion. Imports of petroleum products fell 6.7 percent to $22.3 billion, the lowest level in 22 months, as the average price of an imported barrel of crude oil dropped to $49.93, the lowest point since December 2005.

Imports of autos and auto parts dropped to $14.9 billion, the lowest level since May 1999.

The deficit with Canada dropped 17.6 percent to $2.8 billion in December, the lowest level since June 1999. The imbalance with the European Union rose by 24.5 percent to $7 billion, and the imbalance with Mexico was up 16.1 percent to $4.1 billion.

(Copyright 2009 by The Associated Press. All Rights Reserved.)


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