U.S. January Trade Deficit Rises 0.6% Essay

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The U. S. trade deficit increased slightly in January 2008, up 0. 6% to $58. 2 billion from $57. 9 billion in December, as oil prices pushed the gap higher, despite an increase in exports, according to the U. S. Commerce Department. The trade gap, smaller than forecasted, was estimated to widen to $59. 5 billion according to the median forecast in a Bloomberg News survey of 71 economists (Chandra). In January 2008, exports climbed to a record $148. 2 billion as sales of corn, refined petroleum products, computers and pharmaceutical preparations strengthened. The Federal Reserve data show that the U.

S. dollar has declined about 10 percent over the past year against a trade-weighted basket of currencies from major U. S. trading partners. The decline in the value of the dollar relative to other currencies, notably the euro, has helped make U. S. goods less expensive for overseas buyers and therefore more attractive. This fuelled a healthy global demand for U. S. products and services resulting to earnings from exports rising to a new record. In fact, Asian economies are buying more U. S. aircraft and industrial engines. Boeing Corporation, the second-largest U. S.

defense contractor, last month said it plans to sell 50 helicopters to India and Malaysia this year as the two nations boost defense spending. Nucor Corporation, the largest U. S. -based steelmaker by market value, said it would significantly boost exports this year. Nucor expects exports to top last years record 2 million tons because of higher demand from Europe and the Middle East. On the other hand, imports increased 1. 3 percent to $206. 4 billion, also the highest ever mainly due to oil. The oil import component was magnified by the rise in the price of oil.

Purchases of crude oil jumped, reflecting increases in the number of barrels bought and a record price surpassed $100 a barrel on the New York Mercantile Exchange in January for the first time. The U. S. is the worlds biggest consumer of crude oil and higher fuel costs are making imports more expensive. The U. S. trade gap with major oil producing nations such as Saudi Arabia and Nigeria grew to $15. 5bn, up from $12. 5bn in December (BBC News). The rise in prices of energy imports certainly added concerns about the nations reliance on foreign supplies and added impetus to examining the nations energy strategy.

Higher prices for energy imports will worsen the nations merchandise trade deficit and have a disproportionate impact on the energy-intensive sectors of the economy and on households on fixed incomes (Jackson). However, besides oil, demand for foreign-made consumer goods slumped reflecting the slowdown in U. S. economic growth. Purchases of televisions, clothing, appliances and toys dropped. Demand for capital equipment, such as computers and machinery, made overseas also fell. Analysts are also concerned on the trade gap with China, which in 2007 passed Canada to become the U. S. s largest source of imported goods also increased to $20.

3 billion from $18. 8 billion in the prior month. Some U. S. politicians accuse Beijing of keeping its currency artificially low against the dollar to help its exports. Group of Seven policy makers in February urged China to allow its currency, the Yuan, to climb against the dollar and other currencies. So what are the implications of the trade deficit increase? In the near term, the higher deficit might act as a drag on economic growth in the first quarter, which is already under scrutiny for signs that Gross Domestic Product (GDP) might actually contract during the first three months of the year.

Indeed, Federal Reserve chief Ben Bernanke said last week that a recession, defined as two consecutive quarters of contraction in GDP, is a possibility. As waves of bad news began to wash in- foreclosures, tumbling dollar, falling retail sales and more recently investment bank rescues- exporters were the only thing keeping the national nose and lips above the recessionary waters. The domestic economy shrank by -0. 3 percent between October 2007 and December 2007 while export growth accounted for 0. 9 growth resulting to a barely positive national 0.

6 percent growth. In 2007, Americans produced $13. 8 trillion worth of goods and services. Of this total, $1. 64 trillion (11. 7 percent) went overseas. The figure is a modern-era record, eclipsing the old 11. 2 percent mark set in 2000 and reflecting a $175 billion jump in goods and services exports (Progressive Policy Institute). The January 2008 record increase in exports suggests another export-boom year ahead, with sales to China, Russia, Europe, and the Middle East all continuing to soar, while exports to Mexico, Canada, and Japan began to perk up.

Worsening news from the real estate, financial- market, and consumer sectors mean exporters may not be able to fend off a national recession this year. But their likely trio of records $1 trillion in manufacturing exports, $500 billion in exports, and $100 billion in farm exports will ease its ferocity. Over the long run, a sustained increase in the prices of energy imports will permanently increase the nations merchandise trade deficit, although some of this impact could be offset if some of the dollars are returned to the U. S. economy through increased purchases of U. S.

goods and services or through purchases of such other assets as securities or U. S. businesses. The $58. 2 billion January trade gap remains too high from a balance-of-payments standpoint (Lazzaro). The slump in the U. S. currency and sales in overseas markets may avert a deeper factory slowdown as escalating job losses hurt consumer spending. Exports are one of the remaining sources of strength that is heading toward, or may already be, in a recession.

References

BBC News. US trade gap widens in January. BBC News. 11 March 2008. 29 April 2008. . Chandra, Shobhana.U. S. January Trade Deficit Rises 0. 6%; Exports Gain (Update6). Bloomberg. 29 April 2008. 29 April 2008. . Jackson, James. U. S. Trade Deficit and the Impact of Rising Oil Prices. CRS Report for Congress. 17 Oct. 2007. 29 April 2008. Lazzaro, Joseph. U. S. trade deficit increases in January, better than expected. Blogging stocks. 11 March 2008. 29 April 2008. .

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