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Smith Faculty
Opinion Article
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April 9,
2008
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By Dr. Peter Morici, Professor of
International Business
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Commerce Department to Release
February Trade Deficit Data on Thursday
Thursday, the Commerce Department
will report the February trade deficit.
Last month, the Commerce Department
reported the January deficit on goods
and services was $58.2 billion. For
February, my published forecast is $57.0
billion and the consensus forecast is
$57.6 billion.
The January deficit on trade in good
was $68.7 billion and was partially
offset by a $10.5 billion surplus on
services.
The key data to watch tomorrow will
be the deficits on petroleum and with
China, and the progress of U.S. exports.
Together, deficits on petroleum and
with China totaled $55.4 billion in
January, or about 95 percent of the
trade deficit.
Undervaluation of the dollar against
the Chinese yuan and high oil prices
keep holding up the trade deficit. China
has permitted the yuan to rise 14
percent since July 2005, or about 6
percent a year. However, thanks to
rising productivity, the underlying
value of the yuan rises much more than 6
percent a year. This is evidenced by the
fact that China has been forced to
increase its currency market
intervention to sustain its controlled
exchange rate for the yuan. In 2007, it
purchased $462 billion in dollars and
other foreign currencies, as compared to
$247 billion in 2006. In 2007, the U.S.
deficit with China hit a new record and
was $20.3 billion in January.
The deficit on petroleum products
should fall from the January figure,
$35.1 billion, because oil import prices
fell 1.6 percent, according to a Labor
Department report. However, the volume
of imports is erratic month to month and
difficult to forecast; Commerce and
Labor Departments pricing data do not
always coincide, because the Labor
Department reports import prices earlier
and its data are more preliminary.
Over the last year, monthly exports
rose $21.1 billion to $148.2 billion,
thanks to a weaker dollar against the
euro, pound and other market determined
currencies. This has moderated the
deficit on trade in non-petroleum
products and the overall trade deficit.
U.S. exports compete with EU exports in
nearly every category, and a weaker
dollar against the euro helps boost U.S.
sales in Europe and elsewhere around the
world. However, many other Asian
governments follow China’s lead by
intervening in foreign currency markets
and maintaining undervalued currencies,
and this limits U.S. export gains in
Asia.
Whatever the final trade deficit
figure, it will be close to 5 percent of
GDP, which is too large to be
sustainable.
The foreign borrowing to finance the
deficit is about $50 billion a month, as
only about 11 percent of the deficit is
financed by new direct investment in
productive assets. Debt to foreigners
now exceeds $6.5 trillion, and this
flood of greenbacks abroad is driving
down the dollar, heightening concerns
about the solvency of U.S. financial
institutions, pushing up the price of
gold, and exacerbating the recession.
The stubbornly large trade deficit
heightens the risk of recession. The
deficit subtracts about $250 billion
from GDP, and that amount could double
if the economy slips into a prolonged
recession.
Peter Morici is a professor at the
Robert H. Smith School of Business and former Chief Economist at
the U.S. International Trade Commission. ►More Faculty
Opinion Articles |
