WASHINGTON (AP) – The monthly trade deficit hit $58.3 billion in January, the second-highest in history, as clothing imports from China surged with the lifting of global quotas.

Consumer confidence, however, rose at the fastest pace in seven months in early March according to a separate AP survey.

The Commerce Department’s trade report released Friday showed a January trade gap that was 4.5 percent higher than December’s $55.7 billion deficit and was just below the all-time monthly record of $59.4 billion set last November.

The U.S. trade gap surged by 24.3 percent in 2004 to set a record for the third straight year at $617.1 billion and private economists said 2005 was likely to post yet another record trade imbalance.

In other economic news, the AP-Ipsos consumer confidence index posted a gain of 6.4 percent in early March to 84.2. It was the biggest one-month advance since last August and reflected newfound optimism about job prospects.

Financial markets reacted negatively to news of the ballooning trade deficit. The Dow Jones industrial average fell 77.15 points to close at 10,774.36, and the dollar declined against the 12-nation euro and the Japanese yen.

Democrats said the January trade report showed the failure of the administration’s trade and fiscal policies, contending that the record federal budget deficits were contributing to the record trade deficits.

“The ballooning twin trade and budget deficits dramatize the misplaced fiscal priorities of the president and the Republican Congress,” said Sen. Jack Reed, D-R.I.

Sen. Byron Dorgan, D-N.D., called the deepening trade deficit a national crisis and said President Bush should convene an emergency trade summit to develop a comprehensive deficit reduction plan.

“The Bush administration and the Congress have to stop ignoring this crisis in international trade,” Dorgan said. “The longer we ignore it, the more American jobs will move overseas.”

However, private economists contended the chief culprit in the country’s trade woes was a global imbalance in growth, with the U.S. economy forging ahead – boosting consumer demand – while the economies of Europe and Japan have been sluggish, dampening demand for U.S. exports.

“American consumers continue to aggressively shop and they are buying lots of imported products from consumer electronics and apparel to vehicles and everything in between,” said Mark Zandi, chief economist at Economy.com.

The dollar has been declining in value for three years, a development that should boost U.S. exports by making them cheaper in foreign markets while curtailing imports by making them more expensive for American consumers.

However, analysts said such a change works with a long lag time.

Zandi said the dollar has not declined at all against China’s currency because of that nation’s monetary policy, which American manufacturers contend gives Chinese companies a huge competitive advantage.

The administration has been pressuring China to let the yuan float freely in currency markets, but China has resisted that pressure.

As usual, the largest deficit with a single country was recorded with China, an imbalance of $15.3 billion in January that was driven higher by a 33.6 percent increase in shipments of textiles, reflecting the elimination of global quotas.

“This surge of imports from China is just the tip of the iceberg,” said Cass Johnson, president of the National Coalition of Textile Organizations. “If history is any indication, Chinese imports will continue to soar until they gain a virtual monopoly of the U.S. market.”

That textile group said seven U.S. textile plants have closed so far this year, with job losses in the industry totaling at least 12,000 in January alone. They want the administration to impose higher tariffs.

Jim Leonard, the assistant commerce secretary who oversees textile trade, said the administration was concerned and U.S. officials planned to “raise this issue as part of our ongoing dialogue with the Chinese.”

The overall January trade deficit reflected a 0.4 percent rise in exports of goods and services, which climbed to a record high of $100.8 billion, as sales of industrial supplies and U.S. cars and auto parts set records.

However, imports rose at an even faster pace of 1.9 percent in January, climbing to an all-time high of $159.1 billion. Imports of foreign cars and auto parts and consumer goods were at record levels while imports of capital goods, everything from computers to airplanes, rose to the highest level in more than four years. The increase came although America’s foreign oil bill fell by $930 million in January, reflecting temporarily lower prices.

The size of the trade deficit has raised concerns that at some point foreigners will no longer be willing to own as much dollar-denominated investments in stocks and bonds as they now hold. Such a development could send stock prices plunging and interest rates soaring.

However, Federal Reserve Chairman Alan Greenspan said in a speech Thursday night that he believed any such changes in dollar holdings would occur in an orderly fashion that would not disrupt U.S. financial markets.

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On the Net:

Commerce Department: http://www.commerce.gov

AP-ES-03-11-05 1817EST

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