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November 21, 2000

U.S. Sept. Trade Gap Widens to Record $34.3 Billion
By Vincent Del Giudice, Bloomberg

Trade Deficit Poses Risk to Economy ... Weiss comments

WASHINGTON - The U.S. trade deficit widened to a record in September as energy prices surged and imports of consumer goods reached a new high, government statistics showed today. Exports slipped from the previous month's record.

The $34.3 billion shortfall followed a gap of $29.8 billion in August that had been the narrowest in four months, the Commerce Department said. The report tracks goods and services.

The numbers suggest little slowdown in U.S. demand for foreign products, made cheaper by a dollar that has risen at least 12% this year against a trade-weighted mix of currencies. While lowering costs for many businesses, the influx of cheap goods is also limiting the ability of U.S. companies to pass along higher energy costs and sell U.S.-made goods abroad.

"America's appetite for cheap imported goods continues," said Chris Rupkey, an economist at Bank of Tokyo Mitsubishi in New York. "Much to the chagrin of U.S. business, these goods continue to stream to our shores, making it impossible for them to raise their prices in order to firm up their sagging profit margins."

Imports rose 3.1% in September to a record $126.6 billion, as the trade gaps with China, Canada and Mexico all set records. Exports fell 0.7% to $92.4 billion, as weaker demand for automobiles and auto parts, foods and consumer goods offset increases for semiconductors, civilian aircraft and aircraft engines.

Annual Record

Through September, the trade deficit totaled $270.2 billion this year, up from $188.7 billion during the first nine months of 1999, according to the Commerce Department. The September deficit puts the annual shortfall on track to reach a record $360 billion, compared with the previous high of $265 billion in 1999.

Just last week, a congressional commission charged with studying the enormous U.S. trade deficit concluded that "the gap between what America sells abroad and what it imports from other nations has grown too large, from about $30 billion in 1991 to an estimated $450 billion this year, posing a risk to the record-setting economic expansion and the strength of the dollar." The problem is, nobody on the commission could agree on what to do about it.

Today's release underscores that the problem will not just go away, and the widening trade gap will lead to disaster for the economy.

U.S. profit margins are suffering because cheap imports restrain U.S. companies from raising prices. And we've seen first hand how weak profits and lousy earnings are wreaking havoc on company stocks. At the same time, the ever-rising price of fuel imports means that inflation will only increase. This could lead to stagflation - a general slowing in the economy marked by weak company earnings and lay-offs coupled with higher inflation, in this case, due to high fuel and commodity prices.

Wall Street may choose to ignore the growing trade deficit for today, but the impact on the U.S. economy is inevitable - especially when the government is busy bickering over partisan politics to agree on a solution.

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