Trade deficit widens to $40.6 billion in December

WASHINGTON (AP) -- The trade deficit widened in December as rising oil prices pushed the value of imports up faster than U.S. exports.

The deficit increased 5.9 percent in December to $40.6 billion, the Commerce Department reported Friday.

U.S. exports of goods and services rose to $163 billion, a 1.8 percent gain and the best showing since July 2008. Sales of industrial machinery, civilian aircraft and autos and auto parts led the export gain.

But imports rose even faster. A 2.6 percent gain pushed total U.S. imports to $203.5 billion, the highest level since October 2008. The increase was led by a 16.8 percent rise in imported oil. The average price for a barrel of imported crude oil climbed to $79.78 in December, the highest point since crude imports averaged $91.73 per barrel in October 2008.

A widening deficit is bad for the U.S. economy. When imports outpace exports, more jobs go to overseas workers than to U.S. workers.

For all of 2010, the U.S. trade deficit rose to $497.8 billion, a 32.8 percent surge. It was the biggest annual percentage gain since 2000. In 2009, the deficit had fallen to the lowest point in eight years as demand for imports plunged.

The widening of the trade deficit cut one-half percentage point from overall economic growth last year. Many private economists believe trade will not act as a drag in 2011 because they expect gains in exports to offset increased imports. Over the next decade they are projecting significant strength from exports.

"American companies are very competitive right now, especially with a weaker dollar. They are poised to enjoy strong global growth in coming years," said Mark Zandi, chief economist at Moody's Analytics.

President Barack Obama, looking for ways to attack high unemployment, has set a goal of doubling the nation's exports in five years, a goal private analysts believe is achievable. He recently pledged to move forward this year to win approval of a free trade pact with South Korea.

New trade deals remain a sensitive political issue. Labor unions charge that previous pacts failed to protect American workers from unfair foreign competition and have cost millions of American jobs. Much of the criticism is focused on China, which critics allege is manipulating its currency to gain unfair trade advantages and erecting barriers to keep U.S. products out.

For 2010, the deficit with China rose by 20.4 percent to hit an all-time high of $273.1 billion, the largest imbalance the United States has ever recorded with a single country. The United States has had its biggest trade deficit with China since 2000 when that country surpassed Japan.

The expectation is that trade tensions between the two largest economies will only intensify in coming years.

For 2010, U.S. exports to China climbed to 32.2 percent to an all-time high of $91.9 billion. However, Chinese imports to the United States also rose to a record high of $364.9 billion, an increase of 23.1 percent. The trade deficit is the difference between exports and imports.

"It will be hard to get our unemployment rate down if our trade deficit keeps going up," said Scott Paul, executive director of the Alliance for American Manufacturing.

Paul said it was critical for Congress to pass legislation that would strengthen the powers of the administration to impose trade sanctions on countries found to be manipulating their currency to gain trade advantages.