No matter how you measure it, the U.S. trade gap is at record levels. The deficit is likely to worsen in coming months, thanks largely to the soaring bill for foreign oil. No surprise, the politics of trade deficits are heating up. Political pressure is building in Washington for the Administration to confront a deficit blamed on restrictive trading practices abroad and too liberal trade policies at home. The skirmish could turn into all-out warfare with the Administration aiming to convince Congress to establish permanent normal trading status with China.
Some economists also fear that America's huge trade imbalance imperils the long economic expansion.
For starters, much of the increase in the trade deficit doesn't reflect trade barriers abroad but the impact of the developing world's economic crisis of 1997 and 1998. The demand for U.S. products overseas weakened when the emerging markets of Asia and Latin America collapsed. Conversely, it was strong demand by U.S. businesses and consumers for imported goods that kept many factories running worldwide. Indeed, America's shopping spree most likely averted a global recession. Looking ahead, the global economic environment appears very different.