Trade gap sets record again in 2006

By Doug Palmer

WASHINGTON (Reuters) - The U.S. trade deficit hit a fifth straight annual record in 2006, driven by a record oil import bill and a flood of goods from China, a government report showed on Tuesday.

The Commerce Department said the trade gap expanded by 6.5 percent last year to an all-time high of $763.6 billion, as a record imports swamped record exports.

House of Representatives Democratic leaders seized on the mammoth trade deficit to demand fundamental changes in U.S. trade policy, beginning with stronger Bush administration action to tackle what they said were trade barriers and unfair trade practices in China, the European Union and Japan.

"The consequences of these persistent and massive trade deficits include not only failed businesses, displaced workers, lower real wages and rising inequality, but also permanent devastation of our communities," House Speaker Nancy Pelosi and other Democrats said in a letter to President George W. Bush.

The annual shortfall partly reflected a wider-than-expected December trade gap. That month, the deficit expanded 5.3 percent to $61.2 billion as oil prices rebounded and Americans imported record amounts of consumer goods and autos.

December marked the tenth time in 2006 that the monthly deficit exceeded $60 billion. The annual trade deficit totaled just $30.7 billion in 1991 before beginning its long gallop to current record levels.

Economists said the larger-than-expected December trade gap, combined with other economic data, would require the government to lower its estimate of fourth-quarter 2006 U.S. economic growth from 3.5 percent currently.

"The numbers might slice a little off GDP. ... This week we also have retail sales and other data that could have an offsetting effect. So far it looks like GDP will get revised down 1.2 to 1.3 percentage points," said Doug Smith, chief economist for the Americas at Standard Chartered in New York.

Keith Hembre, chief economist with FAF Advisors in Minneapolis, also expected a downward revision in fourth-quarter gross domestic product.

"It didn't really pass the smell test in the first place. ... It looks like 2.5 percent now," Hembre said.

U.S. Treasury Secretary Henry Paulson and other Bush administration officials have recently credited trade for contributing more than 1.6 percentage points to U.S. economic growth in the fourth quarter.

The trade data help pushed the dollar lower against the euro and the yen. However, many traders were looking ahead to appearances by Federal Reserve Chairman Ben Bernanke before Congress on Wednesday and Thursday.

U.S. debt prices edged down before Bernanke's testimony, while stocks ended higher.

U.S. exports, which have benefited recently from stronger foreign economic growth and a weaker dollar, totaled a record $125.5 billion in December.

The same factors helped propel total exports in 2006 to a record $1.44 trillion, up 12.8 percent from the prior year. Exports grew faster than imports, which rose 10.5 percent in 2006 to $2.20 trillion.