Emad Mekay:

The US trade deficit swelled last year to a record high of $617 billion, a nearly 25 per cent increase over 2003, prompting some analysts to blame the administration’s aggressive free trade agenda.

Numbers released by the Commerce Department last Thursday show that imports increased nearly twice as much as exports, and that the US traditional surplus in services has been gradually shrinking, as has the traditional surplus in goods. “This shows the problems that the US economy is having competing, even with the competitive advantage it has gained following the sharp drop in the dollar against the euro,” said Dean Baker, co-director of the Centre for Economic and Policy Research in Washington.

The 2004 deficit was $121.2 billion higher than the 2003 figure of $496.5 billion. It was driven by a rise in imports, which grew by 16.3 per cent in 2004, nearly double the 8.5 per cent recorded in 2003. As a percentage of US GDP, the goods and services deficit increased from 4.5 per cent in 2003 to 5.3 per cent in 2004. Imports rose sharply in almost every category of capital goods, automotive parts, and consumer goods.

Analysts say that while crude oil represented the largest single deficit item, consumer goods accounted for more than 25 per cent of the total deficit. The deficit in goods alone was particularly notable at $666.2 billion, a post-World War II high.

Nearly a quarter of that was due to trade with China, which grew 30 per cent in 2003. Trade with Canada and Mexico, the US partners in the North American Free Trade Agreement (NAFTA), also grew more than 20 per cent from 2003 and represented almost 17 per cent of the total deficit in goods.

Robert Scott, an economist with the pro-labour Economic Policy Institute referred to the fact that the US had a $37 billion deficit in so-called advanced technology products, an increase of 38 per cent since 2003. Some analysts blamed the deficit on the free trade agenda enthusiastically pursued by the US trade representative and the Bush administration. The US is also working toward a Central American Free Trade Agreement with Guatemala, El Salvador, Honduras, Costa Rica, Nicaragua and the Dominican Republic. And US officials are seeking a Middle East Free Trade Area to compliment bilateral trade deals with Israel, Jordan, Morocco and Bahrain. Free trade talks with the UAE and Oman were recently announced.

Washington says it intends to begin similar discussions with Thailand, Colombia, Peru, Ecuador, Bolivia and Panama. Talks on a hemisphere-wide Free Trade Area of the Americas for more than 30 countries stalled after the last meeting in November 2003 in Miami, primarily over US refusal to end agricultural subsidies.

The US deficit with China is by far the largest of any country, at $162 billion. The deficit with Japan rose to $75.2 billion, and the deficit with Western Europe went up by to $114.1 billion.

Some economists say that other wealthy countries may be using the US free trade plans to access its market through the back door. Many analysts say that if the trade deficit is to decline sharply in the near future, the dollar will have to drop further, making US products more attractive for consumers.

Dan Griswold, director of the Cato Institute’s Centre for Trade Policy Studies in Washington, argues that US is trading more with the rest of the world then ever before, referring to the fact that US exports in 2004 surpassed their previous peak of 2000, which should be welcome news to US manufacturers that were hit hard by slumping demand abroad. — IPS