Global Policy Forum

By Jeff Bater

The U.S. trade gap widened to yet another record in the first three months of the year as the strengthening economy spurred a surge in imports.

The U.S. current-account deficit -- the broadest measure of the nation's trade deficit -- grew to a record $144.9 billion in the first quarter, from $127 billion in the previous three months, the Commerce Department said.

Analysts had expected the gap to expand, thanks to rising oil prices and a sharpened U.S. appetite for import goods, but not by so much. "We have seen that the recovery in the economy continues to fuel demand for imports," said Gary Thayer, chief economist for A.G. Edwards in St. Louis. "With the strong economy, there is still strong demand for imported goods," he said, "That appears to be what's keeping this current-account deficit so high -- more so than a weaker dollar would bring it down."

The dollar has been in decline against the euro and the yen for much of the past two years. In theory, that makes imports more expensive and gives U.S.-made products a price edge at home and abroad. But Americans have continued to boost imports faster than their exports. The Commerce Department figures released Friday showed the current-account deficit at $530.7 billion for 2003, about 5.1% of the domestic economy. Standard & Poor's chief economist David Wyss forecast the deficit would swell to $618 billion for this year, 5.8% of projected U.S. economic activity.

Over the past few months, Federal Reserve policy makers have consistently played down worries that the growing current-account deficit might frighten off foreign investors, who are pouring dollars into U.S. assets. In one such disaster scenario, foreigners troubled by the size of the current-account deficit and a decline in the dollar might slash their purchases of U.S. assets, driving the dollar into a deeper decline, forcing up interest rates, and bringing the U.S. recovery to a halt.

"What we've concluded is that international financial markets are sufficiently flexible to allow the inevitable adjustment of those outsize deficits to gradually decline in a way which is not disruptive to economic activity," Fed Chairman Alan Greenspan told U.S. lawmakers last week at a congressional hearing.

Treasury Secretary John Snow told reporters Friday that "we are encouraging steps at home and abroad that would make [the current-account deficit] more manageable." Mr. Snow cited the administration's promise to cut the U.S. budget deficit in half over the next five years, and tax breaks to encourage domestic savings. He also repeated a familiar U.S. message to other countries: They must grow faster to create markets for U.S. goods and services.

Nonetheless, the new trade numbers could well become campaign fodder for the presumptive Democratic presidential nominee, Sen. John Kerry (D., Mass.), who has charged that the administration's trade policies have cost Americans jobs.