US trade deficit soars
By Peronet Despeignes in Washington
Published: May 13 2003 13:51
The monthly US trade deficit widened sharply in March to its second highest level on record, as the pre-Iraq-war run-up in oil prices inflated the import total and export growth slowed to a crawl.
The figures could mean that US economic growth in the first quarter was even more sluggish than previously reported. The report also added to already considerable scrutiny of the embattled US dollar, but it was unclear how much of the jump in March was temporary.
The Commerce Department said the monthly deficit in goods and services grew by 7.7 per cent in March the biggest increase this year to $43.46bn. That was well above most economists’ expectations, following an upwardly revised $40.37bn deficit in February. Exports were mostly flat, but imports rose 3 per cent.
Much of the import surge reflected the jump in oil prices preceding the Iraq war and the dollar's fall over the past year, which has made imports more expensive. But sharp increases in oil volume also played a big role, and the rise in imports was broad based.
"Companies were perhaps worried about disruptions before the war, so they hedged and built up reserves," said Conrad DeQuadros, an economist at Bear Stearns.
Economists are generally hopeful the dollar's drop over the past year will help arrest the deficit's growth by making US exports cheaper and imports more expensive. That has yet to happen. Despite the dollar’s 6 per cent drop against a trade-weighted basket of currencies and its 25 per cent slide against the euro over the past year, US imports have surged more than 16 per cent and the deficit has widened by more than a third. The annual trade gap appears on track to hit $500bn this year.
Part of the widening could be due to the "J-curve" effect: when the dollar declines, imports become more expensive, but import orders take time to react to price changes since they are often placed months in advance. Import revenue may rise temporarily until volume shrinks enough to offset the increase in import prices.
Economists are divided over how long the deficit will continue to grow.
Mr DeQuadros predicted the trade gap would continue to widen "because growth in the US is likely to continue to outpace growth in Japan and Europe. And we don’t think the dollar's drop is sustainable because fundamentals in the US, including productivity growth, are stronger."
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