By Don Miller
The U.S trade deficit fell to the lowest level in nearly six years in December as the recession continued to depress domestic need for imports and the spread of the global financial crisis slashed demand for U.S. exports, the Commerce Department reported yesterday (Wednesday).
The trade deficit shrank to $39.9 billion in December, the fifth consecutive month it has declined, marking the second full year in a row the gap has contracted.
The string of smaller trade imbalances represents a reversal of a 16-year trend, as the deficit had increased consistently since 1991, when it was only $31.2 billion.
While it continued the recent downward slide, the trade deficit did not fall as far as many had hoped, according to Ian Shepherdson, economist atin New York.
"Despite the impact of the drop in oil prices and a one-time jump in aircraft exports, which we expected, the headline deficit did not fall as far as we had hoped thanks to a massive plunge in core exports," Shepherdson wrote in a note to clients, CNN reported.
Economists had expected the trade gap to narrow to $35.7 billion, according to the median forecast in a Bloomberg News survey of 70 economists.
Imports in December dropped to $173.7 billion, the lowest since September 2005, as oil prices fell and consumers bought fewer foreign-made cars and trucks.
Exports, which have bolstered the U.S. economy since early 2007, will not provide much help in coming months, economists predict. The weak dollar had made exports more affordable to foreigners but that trend has been reversed by a flight to quality as investors bought U.S Treasuries and sold other currencies.
"The boost from trade has vanished," Jonathan Basile, an economist at Credit Suisse Holdings (ADR: CS) in New York, told Bloomberg before the report. "U.S. demand is falling even faster than demand from our trading partners. There"s weakness across-the-board in imports, and the global recession will be a damper on exports."
The deficit fell for all of 2008 for a second straight year to $677.1 billion and economists are projecting an even bigger decline this year. The imbalance was the lowest annual total in five years, and most economists expect it drop again in 2009.
But nothing seems to impact our appetite for Chinese goods.
The trade gap with China continued to soar in 2008, hitting an all-time high of $266.3 billion as imports from that country rose to a record $337.8 billion, the highest imbalance ever recorded with any country, Reuters reported.
The deficit with China has ignited a political backlash, with critics calling for trade sanctions against Beijing for using unfair trade practices that have cost American jobs.
But even China is not immune from the global financial meltdown as its exports plunged in January, according to customs data released Tuesday. Exports fell 17.5% last month compared with the year-ago period.
To keep more money at home, some U.S. firms are lobbying for a "Buy American" provision as part of President Barack Obama"s stimulus plan.
Steel companies, led by U.S. Steel Corp. (X) and Nucor Corp. (NUE), are pushing for a clause mandating the exclusive use of American-made steel and iron to build infrastructure projects under the stimulus plan currently being debated in Congress.
But other companies including Caterpillar Inc. (CAT), Microsoft Corp. (MSFT) and the U.S. Chamber of Commerce, fear it might lead trading partners to erect their own protectionist measures, reducing trade even further.
Congressional leaders are honing the plan to give preference to U.S. products but only if it satisfies U.S. obligations under the World Trade Organization.
PPG Industries Inc. (PPG), the world"s second-biggest paint maker, said last month that it could cut as many as 4,500 jobs due to weak global demand from automakers and homebuilders.
"The regions outside of North America, which had been really helping PPG in the first three quarters of last year, have sort of caught the disease that started here in the U.S. with the credit crisis," Chief Executive Officer Charles E. Bunch said Jan. 27 in an interview.
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Trade gap narrows for 2nd straight year