I have talked about the rising trend of the U.S. trade deficit in the past. While the government and many U.S. manufacturers may not like it, the American consumer is clearly benefiting from lower prices pay at the cash registers. The rising trade deficit remains a very hot issue in Washington. And, based on the recent data, you know Washington was not happy to see the latest numbers.
The country’s trade deficit set another record in January to an all- time monthly high of $68.5 billion. The main culprit continues to be China, where Chinese imports continue to rise in spite of some measures put in place by Washington to try to stem the flow of cheap Chinese goods. The U.S. trade deficit with China surged 9.9% in January to $17.9 billion. But so far, it is not working as cheap Chinese cell phones, textiles, shoes and clothing surged in January.
Yet China is not the only problem. The U.S. trade deficit with its largest trading partner, Canada, surged 11.1% in January to a record $8.9 billion, while its trade deficit with Mexico climbed 8.8% to $4.6 billion.
The Bush administration is clearly on the hot seat. While free trade on a global basis is desired, the administration continues to face criticism in its dealings with China.
As I said in the past, there is a trade-off here. The unfortunate loss of jobs in the U.S. manufacturing sector is not easy to accept, but at the same time, consumer hungry Americans are paying less for many goods such as clothing, electronics, and food. This also helps many U.S. businesses. Washington must not lose sight of this when working on its trade policies.
A high tariff on foreign goods could drive up the cost of goods for consumers and this would not be good.
So the strategy to control the trade deficit, which was a record $723.6 billion in 2005 and expected to rise in 2006, will need to be carefully thought out. Washington must balance the trade deficit |with the lower costs paid by American consumers.