News > Economy
U.S. trade gap hits record $44B
For the third year in a row, the greatest trade gap, by country, was with China, $103B in 2002.
February 20, 2003: 6:46 PM EST

WASHINGTON (Reuters) - The U.S. trade deficit unexpectedly jumped 10.6 percent in December to a record $44.2 billion, as the ravenous U.S. demand for imports continued to grow and exports slumped, the government said Thursday.

The monthly trade gap far exceeded the average estimate of $38.8 billion by analysts before the report and pushed the tally for the year to a record $435.2 billion, as U.S. exports declined for the second year.

In a sign the U.S. economy continues to outperform its major trading partners, imports increased 1.7 percent to $125.4 billion in December while exports declined 2.6 percent to $81.2 billion.

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"That tells me not only is the global economy not strengthening, but it's getting weaker," said Mark Vitner, senior economist at Wachovia Securities in Raleigh, North Carolina.

The biggest factor behind the monthly export decline was a $2.2 billion drop in capital goods exports.

David Wyss, chief economist with Standard and Poor's in New York, said the surprising jump in the monthly trade gap was partly due to the lingering effects of a labor dispute at West Coast ports that closed them for 10 days last fall and created a backlog of imports.

"But we are seeing a record $44 billion deficit, so there's nothing really good about that," Wyss said. "The dollar is way too strong. The rest of the world is a real drag on the U.S. It's not an imminent problem, but with the dollar weakening, strain is showing."

On an individual country basis, the U.S. trade deficit with Germany set a record in December at $4.1 billion, fueled by a record $6.3 billion in imports. The trade gap with Japan, at $7.1 billion, was the highest since October 2000, when it reached the same level.

The U.S. trade deficit increased 21.5 percent in 2002, propelled by record high imports from China and Western Europe. Bilateral trade deficits with China, Western Europe, Mexico, and South and Central America also set records in 2002.

Imports from China surged to $125.2 billion, surpassing Japan as the United States' largest import partner behind Canada and Mexico.

While U.S. exports to China also set a record last year, they totaled only $22.1 billion, pushing the bilateral trade deficit to a record at $103.1 billion.

Sung Won Sohn, chief economist for Wells Fargo Bank in Minneapolis, said the rapidly expanding trade deficit with China represents its appeal as a low-cost manufacturer.

"In a difficult economy, everyone is trying to cut costs and raise productivity. The best way to do that is to produce in China," Sohn said.

U.S. exports fell 2.5 percent in 2002 to $973 billion. Exports to Western Europe slipped to the lowest level since 1997 while U.S. exports to Japan were the lowest since 1993.

Greg Mount, deputy chief economist at Bank One, said the higher trade deficit with Europe was due to a combination of forces such as the strong U.S. dollar and a slump in U.S. productivity in 2001.

With the dollar now having lost some of its value against the single European currency, and U.S. productivity on the upswing, the trade gap with Europe should narrow in 2003, he said.  Top of page

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