Recession Sends Trade Deficit Plunging

The U.S. trade deficit plunged in January to the lowest level in six years as a deepening recession cut demand for imported goods at an even faster rate than for exports.

The Commerce Department said Friday the trade imbalance dropped to $36 billion in January, a decline of 9.7 percent from December and the lowest level since October 2002.

The improvement was better than the $38 billion deficit that economists had expected and reflected the fact that crude oil imports dropped to the lowest point in three years and demand for a wide variety of other foreign goods from autos to heavy machinery and household appliances declined.

The import declines helped offset a continued slide in U.S. exports which fell to their lowest level since September 2006, a drop that has contributed to the severe recession in U.S. manufacturing.

For January, exports of goods and services fell 5.7 percent to $124.9 billion. Demand for a wide variety of U.S.-made products from farm goods to autos to civilian aircraft all dropped in January.

Boeing Co. and Caterpillar Inc. are among a number of major U.S. exporting companies that have announced layoffs due to falling demand for their products in key overseas markets.

Imports fell even more sharply in January, declining by 6.7 percent to $160.9 billion, the lowest level for imported goods since March 2005. The decline in imports was led by a 25.2 percent drop in imported crude oil, which fell to $11.9 billion in January, the lowest level since February 2005. The average price for a barrel of crude dropped to $39.81, also the lowest point since February 2005.

America's deficit with many of its trading partners declined sharply although the politically sensitive imbalance with China bucked the downward trend, rising by 3.5 percent to $20.6 billion. U.S. exports to China plunged by 19.7 percent, a much bigger drop than the 1.3 percent decline in Chinese goods shipped to the United States.

U.S. manufacturing companies who have been battered by what they view as unfair competition from China said that the continued high deficit with China, the largest U.S. trade gap with any nation, pointed to the need for the Obama administration to take a tougher line than the Bush administraiton with China.

"The United States will not be able to jumpstart its economy unless it stops trade cheats like China from decimating U.S. manufacturing," said Auggie Tantillo, the executive director of the American Manufacturing Trade Action Coalition, a group which is pushing the new administration to impose trade sanctions on China.

The overall January deficit of $36 billion, if it continued for the entire year, would result in a deficit of $432 billion for 2010, a drop of 36.5 percent from the $681.1 billion deficit recorded in 2008. That deficit represented a 2.7 percent drop from 2007, the first year that the trade gap had narrowed after setting records for five straight years.

Many economists believe the improvement for this year will be sizable as the country's most severe recession in decades trims Americans' appetite for foreign goods.

U.S. exports are also falling as the recession that began in the United States spreads worldwide. However, so far, the drop in imports is larger than the fall in exports, reflecting in large part the fact that oil prices have plummeted from the record levels they hit last year.

The trade deficit has now declined for a record sixth straight month, beating the prior record for declines of five straight drops set in 2007.

By country, the U.S. deficit with Canada, America's biggest trading partner, dropped by 10.7 percent to $2.5 billion, the lowest imbalance since May 1999. The deficit with Japan fell 18.4 percent to $4.3 billion, the lowest trade gap with that country since January 1998. The deficit with the 27-nation European Union plunged 50.1 percent to $3.5 billion.

Many economists are worried that the spreading global economic weakness could prompt countries to resort to raising trade barriers in an effort to protect their domestic industries.

Treasury Secretary Timothy Geithner was meeting in Britain on Friday with finance ministers from the Group of 20 countries, which include the world's wealthiest economies and major developing countries such as China, Brazil and India. President Barack Obama is pushing the G-20 nations to adopt sizable economic stimulus programs to jump-start their stalled economies. The U.S. Congress recently passed a $787 billion stimulus package that had been championed by Mr. Obama.

Former Dallas mayor Ron Kirk, tapped by Mr. Obama to be the top U.S. trade official, told the Senate Finance Committee at his confirmation hearing on Monday that his main objective as U.S. trade representative would be to enforce existing law and insist that all trade partners play by the rules.