The deficit jumped 17.1 per cent to $46.6 billion in December, resulting in the biggest imbalance since November 2012, the Commerce Department reported Thursday. The widening trade gap reflected a drop in exports, which retreated 0.8 per cent to $194.9 billion. Meanwhile, imports soared 2.2 per cent to $241.4 billion.
Economists were split on the implications of the bigger-than-expected December trade deficit. The government estimated last week that the overall economy grew at a moderate 2.6 per cent rate in the final three months of 2014 after turning in a sizzling 5 per cent growth rate in the July-September period.
Paul Ashworth, chief U.S. economist at Capital Markets, said he believed much of the December trade data was already reflected in the first GDP report released last week.
But Jennifer Lee, senior economist at BMO Capital Markets, said she thought the trade gap numbers, along with weaker growth in business stockpiles, could trim as much as a 0.5 percentage point from the government's estimate. Michael Feroli, an economist at JPMorgan, also took a dim view of the results. He is trimming his estimate of fourth quarter growth to just 2 per cent, although he still expects a rebound to 3 per cent growth in the current January-March quarter.
"This is not good news for the final measure of economic growth," Lee said in a research note.
The deficit for 2014 overall increased to $505 billion, up 6 per cent from the 2013 deficit of $476.4 billion, the Commerce Department said. Economists expect the deficit to widen further in 2015 as strong growth in the United States boosts imports, while weak growth overseas and a rising dollar continue to depress exports.
The widening trade deficit comes at a time when the Obama administration is hoping to finally get Congress to approve the fast-track authority it needs to wrap up a major 12-nation trade agreement with Japan and other Pacific Rim countries known as the Trans-Pacific Partnership.
The administration sees the trade deal as one of the areas where he may be able to find common ground with Republicans, who now for the first time in Obama's presidency control both houses of Congress.
U.S. Commerce Secretary Penny Pritzker said that U.S. exports had set a record for a fifth consecutive year — a fact that the administration plans to use to secure votes for the trade deal.
"These trade agreements will support the growth of jobs and the growth of middle class economics," she said in an interview.
But critics hoping to block the administration's trade efforts in Congress pointed to the record level of imports and rising deficits with economic powers such as China and South Korea as proof that the U.S. push for liberalized trade is costing U.S. jobs.
"This abysmal data shows how the past agreements that serve as the template for the trade deals President Obama is now pushing destroy more middle class jobs and further suppress wages," said Lori Wallach, director of Public Citizen's Global Trade Watch.
She cited the deficit with South Korea, which hit a record of $25.1 billion last year and has soared since the U.S. implemented a free trade agreement with that country in 2012.
The politically sensitive deficit with China set another record last year, rising 23.9 per cent to $342.6 billion. The trade gap with China is America's biggest deficit since China surpassed Japan in that category in 2000.
Those deficits are creating pressure on Congress and the Obama administration to take tougher actions against what critics see as China's unfair trade practices. U.S. manufacturers contend that China is manipulating its currency to keep it artificially low against the dollar as a way to make American products more expensive in China's market and Chinese products cheaper in the United States.
The $505 billion deficit for the year was the largest imbalance since a $537.6 billion deficit in 2012.
The economy expanded 2.4 per cent in 2014, with trade trimming growth by 0.2 percentage point. Many economists believe growth in 2015 will hover slightly above 3 per cent, giving the country the best growth in a decade
The trade deficit would have been even larger last year if it weren't for the energy boom in the United States. Higher production at home has been lowering America's reliance on foreign oil. For the year, petroleum imports fell 9.6 per cent to $334.1 billion, the lowest level for imports since 2009. U.S. petroleum exports jumped 5.9 per cent to a record $45.7 billion.
For 2014, the deficit with the European Union climbed 12.5 per cent to a record $141.1 billion, as growth in imports outpaced U.S. export sales to Europe.
The U.S. deficit with Mexico fell to $53.8 billion, the lowest since 2009. The United States ran a record surplus of $34.4 billion with the countries of South and Central America.