JANUARY TRADE DEFICIT IS $58.2 BILLION

Imports and exports hit all-time highs in January as imports came in at $206.4 billion with exports totaling $148.2 billion. With the price of oil at $107.52 this morning and consistently closing over $100 per barrel, expect March to set a new record for imports.

From The New York Times:

The United States' trade deficit grew larger in January as imports -- including crude-oil prices -- zoomed to all-time highs.

The latest snapshot of trade activity, reported by the Commerce Department on Tuesday, showed that the country's trade gap increased to $58.2 billion. That was up from a trade shortfall of $57.9 billion in December and was the highest since November.

Imports of goods and services climbed to a record high of $206.4 billion in January. The United States' voracious appetite for imported crude oil, where prices skyrocketed to the loftiest on record, figured into the increasing demand for overall imports.

The trade gap widened even as exports of U.S.-made goods and services totaled a record high of $148.2 billion in January. The declining value of the U.S. dollar, relative to other currencies such as the euro, is helping to make U.S.-made goods cheaper and thus more attractive to foreign buyers.

INFLATION IN CHINA LIKELY TO INCREASE INFLATION IN U.S.

For years Americans have come to rely on inexpensive imports from China, and China has happily delivered. Inflation, long tame in China, is roaring again and American consumers can expect to pay higher prices for Chinese imported goods this year.

From The New York Times:

American consumers could see prices increase by as much as 10 percent this year on specific products — including toys, clothing, footwear and other consumer goods — just as the United States faces a possible recession.

In the longer term, higher costs in China could spell the end of an era of ultra-cheap goods, as well as the beginning of China’s rise from the lowest rungs of global manufacturing.

Chinese imports constitute 7.5 percent of spending by Americans on consumer goods, but they make up much bigger shares of several popular categories, including about 80 percent of toys, 85 percent of footwear, and 40 percent of clothing.

While no reliable figures exist on average Chinese wages, experts say that factory wages have risen 80 percent or more in many coastal areas in recent years, with the lowest wage about $125 a month.

To reduce costs, some factory owners are considering moving to inland China, where wages are lower, or to other parts of Asia, like Vietnam and Indonesia.

SLOW, STEADY APPRECIATION OF CHINESE YUAN CONTINUES

U.S. Treasury Secretary Henry Paulson wrapped up his now twice yearly meetings with Chinese officials yesterday. Some progress regarding the appreciation of the Chinese currency, the yuan, and food and product safety for Chinese exports to the United States seems to have been made.

From Reuters:

"The Chinese recognize growing inflationary pressures in their economy and that a more flexible currency expands their ability to use monetary policy to stabilize their economy," Paulson said at a closing news conference.

China's central bank, which keeps the currency on a tight leash, let the yuan rise on Thursday to its highest level since it was revalued and depegged from the dollar in July 2005. The bank is battling inflation of 6.9 percent, an 11-year high.

A highlight of the talks was an agreement to increase safety standards for Chinese food and product exports to U.S. markets -- a highly sensitive topic after millions of Chinese-made toys were recalled and American indignity over tainted food and pharmaceuticals from China ran high.

I find it interesting that Paulson is stating that the Chinese recognize that a flexible currency allows them to better fight inflationary pressures. That is a concept that freshman business students seem to grasp, so I would hope that one of the world's economic powers understands it. They have tried fixing prices on some goods and raising the bank reserve rate to slow inflation. When will they try the more economically sound principle of a flexible currency?

As for the increase in safety standards for Chinese food and other products that are exported to the United States, there was plenty of room for improvement. We will have to wait and see if the reports of unsafe Chinese products decrease.

TRADE DEFICIT RISES EVEN AS EXPORTS INCREASE

From AP via MSNBC:

The U.S. trade deficit rose to the highest level in three months, with record oil prices and a flood of toys and other imports from China swamping a solid gain in American exports.

The Commerce Department reported Wednesday that the deficit for October increased to $57.8 billion, the highest level since July and 1.2 percent above the September imbalance.

The widening deficit was slightly worse than expected and occurred even though U.S. exports of goods and services rose for an eighth consecutive month, climbing 0.9 percent to an all-time high of $141.7 billion. This gain was offset by a 1 percent rise in imports to $199.5 billion, also a record, as a surge in global oil prices sent America’s oil bill soaring.