US trade deficit widens to Dollars 54bn

Author: Christopher Swann

Published: October 15, 2004

* Oil prices and Chinese imports behind increase

* Data will overshadow GDP figures before poll

The US trade deficit widened unexpectedly to Dollars 54bn in August, the second largest deficit on record, as the economy re-emerged as a principal battleground in the last weeks of a close presidential election race.

The larger than expected gap, which followed a Dollars 50.5bn shortfall a month earlier, was due in large part to high oil prices and a surge in imports from China. The trade data are expected to take the shine off the third quarter gross democratic product figures, released three days before Americans go to the polls on November 2.

Yesterday's news came only hours after John Kerry, the Democratic presidential candidate, had launched an assault on the handling by George W. Bush, the American president, of the economy in the final debate of the election campaign. Mr Bush sought to characterise Mr Kerry as a tax-and-spend liberal who had failed to cost his ambitious healthcare reform plans.

As the markets absorbed the figures, investment banks lowered their forecasts for growth. Morgan Stanley scaled back its expectation from 4.6 to 4 per cent annualised for the quarter.

Meanwhile John Snow, Treasury secretary, announced he would stop new investments in a retirement fund for federal workers in order to avoid hitting the government's Dollars 7,400bn debt. He promoised to make good the shortfall once the borrowing limit was raised.

Analysts said lawmakers may have not wanted to raise the limitclose to the election but would be forced to do so soon after.

"This is pure political theatre," said Len Burman, a fellow at the Urban Institute, the Washington-based think-tank. "Politicians did not want to highlight the deficit by raising the borrowing limit ahead of the presidential vote for fear of causing embarrassment."

During Wednesday's debate, it became clear the encounters had transformed the 2004 election, firing up what had been a trailing Kerry campaign and causing self-doubt in the Bush camp.

Mr Kerry said: "Being lectured by the president on fiscal responsibility is a little bit like Tony Soprano talking to me about law and order in this country."

But President Bush argued that Mr Kerry's healthcare reform plans were unaffordable. "It's an empty promise," Mr Bush said. "It's called bait and switch."

Two polls conducted immediately after the debate indicated that Mr Kerry had won. A third said the candidates had tied.

Overall, polls showed Mr Bush and Mr Kerry at a heat in the election race. The Zogby poll showed each man had 45 per cent of the vote. An ABC news poll showed candidate backed by 48 per cent of likely voters.

This return to equilibrium in the polls marks an upswing in the fortunes of Mr Kerry. He told the audience in Tempe, Arizona: "The president has taken a Dollars 5.6 trillion surplus and turned it into deficits as far as the eye can see." Neither man offered great detail on how he would deal with the burgeoning deficit. "

But in remarks that showed he had perfected the art of character assault, Mr Bush said: "You know, there is a mainstream in American politics and you (Kerry) sit right on the far left bank. As a matter of fact, your record is such that Ted Kennedy, your colleague, is the conservative senator from Massachusetts."

He went on: "My opponent talks about fiscal sanity. His record in the United States Senate does not match his rhetoric."

When asked about jobs lost on his watch, Mr Bush switched to education, describing his "No Child Left Behind Act" as a jobs initiative. Mr Kerry noted that Mr Bush sought to avoid the jobs and minimum wage issue, following up with one of many statistical bombardments on Mr Bush's domestic policy record.