Trade deficit shrinks along with the economy

ByMartin Crutsinger, AP Economics Writer
March 14, 2009, 8:59 PM

WASHINGTON -- The government says the U.S. trade deficit plunged in January to the lowest level in six years as a deepening recession cut demand for imported goods.

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

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

U.S. exports of goods and services fell 5.7% from December to the lowest since September 2006 and imports tumbled 6.7% to lowest since March 2005.

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

The 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% from the $681.1 billion deficit recorded in 2008. That deficit represented a 2.7% 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 month, beating the prior record for declines of five straight drops in 2007.

For January, exports of goods and services dropped 5.7% to $124.9 billion, lowest since September 2006. Demand for a wide variety of U.S.-made products from farm goods to autos to civilian aircraft all dropped in January.

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

While exports have not fallen as sharply as imports, the declines that have occurred have pinched U.S. companies.

Boeing and Caterpillar, two of America's largest exporters, have already announced layoffs due to falling demand for their products in key export markets.

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

Treasury Secretary Timothy Geithner was meeting in Britain on Friday 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. The Obama administration 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 pushed by President Barack Obama.

Former Dallas mayor Ron Kirk, tapped by Obama to be the nation's top 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 U.S. trade partners play by the rules.

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