The U.S. trade deficit widened by 6 percent in December, adding up to a record-high annual trade gap with China.
The trade gap with China lessened by 19.1 percent in December to $20.7 billion. But the total annual deficit last year added up to the largest deficit the U.S. ever had with any single country, topping up at $273.1 billion.
Exports rose by 1.8 percent to $163 billion but imports rose by 2.6 percent to $203.5 billion, resulting in a deficit of $40.6 billion. This is in line with economists’ median forecast of $40.5 billion.
The larger deficit is primarily due to higher oil prices, which increased petroleum imports by 25.9 percent to $25.3 billion. If the boost in oil imports were excluded, the trade gap had actually narrowed.
“Fourth quarter exports got a boost from a weaker dollar against the euro earlier in 2010—the export effect of a weaker or stronger dollar occurs with a lag of several months,” said Peter Morici, a professor at the Smith School of Business and former chief economist for the U.S. International Trade Commission.
Manufacturers like Caterpillar Inc. benefit from the drop in dollar value that encourages demand from emerging economies like China, Australia and Brazil. Caterpillar, the largest manufacturer of construction equipments, posted a 31 percent increase in sales and revenue at the end of last year at $42.6 billion and predicts that they will top $50 billion this year.
“Companies that produce mining and drilling equipments and also agricultural equipments, which the U.S. dominates, are riding in the sweet spot right now,” said Mike Englund, chief economist for Action Economics.
Mike DeWalt, director of investor relations at Caterpillar, denied any relation between the company’s growth and growing construction in the country.
“What we are seeing is customers cut purchases so far they are at a point now where they have to do some replacement buying, both for rental fleets and customer fleets. So that is what is driving the numbers, not robust construction,” he said during an earnings report conference this January.
Morici warns that the situation is likely to reverse this year because of Europe’s continuing sovereign debt crisis. “November will likely prove to be the low point for the trade deficit, as imports of oil and consumer goods from China overwhelm any further progress in U.S. export growth.”
Revised on February 16, 2011.