US trade deficit up on oil price

 11 May 2011 Last updated at 14:38 ET  Oil prices rose sharply in March due to the conflict in Libya, and rose further in April The US saw a widening trade deficit in March thanks largely to the increasing cost of the country's oil imports.

The $48.2bn (￡29.5bn) shortfall was up from $45.4bn a month earlier, data from the Commerce Department showed, and beat expectations of just $47bn.

However, excluding trade in petroleum products, the deficit was only $16.9bn and had fallen since the month before on a seasonally-adjusted basis.

Exports grew 4.6% to $173bn - surpassing their pre-recession high.

The country's exports saw their biggest monthly gain in 17 years, led by food and beverages, and industrial supplies.

Crude oil prices increased sharply at the end of February thanks to the conflict in Libya, and this has been reflected in the rising cost of imports for the US.

They rose even further in April, and despite the recent sharp sell-off in commodity markets, remain close to the levels seen in March.

The news pushed the dollar sharply higher against most currencies, as the strong export performance brought forward expectations for when the US Fed will start raising interest rates.

The trade figures were released at the same time as positive jobs data from the Labor Department that showed a rise in the number of job openings in March.

The stronger dollar helped to bring the price of US sweet light oil - which is measured in dollars - down 4.5%.

Democrats’ Plan Would Offset Deficit by Ending Big Oil’s Tax Breaks

 

With high gas prices and rising federal deficits in the political spotlight, senior Democrats believe that tying the two together will put pressure on Senate Republicans to support the measure or face a difficult time explaining their opposition to voters whose family budgets are being strained by fuel prices.

President Obama and some top Congressional Democrats have said they want to take some of an estimated $21 billion in savings from ending the tax breaks and steer it to clean energy projects. But the Senate’s Democratic leadership is calculating that using it to cut the deficit instead makes it a tougher issue politically for Republicans who are trying to burnish their conservative fiscal credentials.

“Big Oil certainly doesn’t need the collective money of taxpayers in this country,” said Senator Robert Menendez, Democrat of New Jersey, one of the authors of the legislation that Democrats intend to showcase. “This is as good a time as any in terms of pain at the pump and in revenues needed for deficit reduction.”

As part of the effort to build support for the measure, the Senate Finance Committee has invited multinational oil company executives to discuss the tax subsidies and other government incentives at a hearing on Thursday.

Many Republicans are certain to oppose the proposal, making it hard for Democrats to assemble the 60 votes that will be needed to break a filibuster, given the resistance from energy-state senators in their own ranks. Republicans have characterized calls by Mr. Obama and Congressional Democrats to end the breaks as backdoor tax increases that will only increase gas prices.

“Instead of returning again and again to tax hikes that increase consumers’ costs, the administration and its Democrat allies in Congress should open their eyes to the vast energy resources we have right here at home and to the hundreds of thousands of jobs that opening them up could create,” Senator Mitch McConnell of Kentucky, the Republican leader, said in a statement.

Hoping to reinforce that point, House Republicans are set to approve legislation this week that would expand the coastal areas where energy companies can explore and produce oil and gas.

Democrats say they tailored their bill to make it harder for Republicans to reject after Senator Harry Reid, the majority leader, and Mr. Menendez wrote to colleagues last week that their goal was to “proceed with a bill that maximizes our chances of garnering bipartisan appeal.”

As currently written, the bill would apply only to what Democrats have identified as the five largest and most profitable oil companies: BP, Exxon Mobil, Shell, Chevron and Conoco Phillips. Those involved in writing the measure said they restricted it to those firms by using a definition that applied to major oil companies with certain levels of revenue. Democrats say they believe that approach thwarts Republican arguments that eliminating the tax breaks could affect more than just the major oil firms.

The proposal would end a series of tax advantages for the five companies and produce about $21 billion over 10 years, Democrats say.

More than $12 billion would come from eliminating a domestic manufacturing tax deduction for the big oil companies, and $6 billion would be generated by ending their deductions for taxes paid to foreign governments. Critics suggest that the companies have been able to disguise what should be foreign royalty payments as taxes to reduce their tax liability. The bill would also deny the companies the ability to deduct some intangible drilling and development costs, producing another $2 billion.

Some Congressional Democrats, including Senator Max Baucus, the Montana Democrat who heads the Finance Committee, have proposed using the revenue from the elimination of the tax breaks to promote alternative fuels and provide incentives to purchase fuel-efficient vehicles. Mr. Obama has made similar suggestions, and in his regular address over the weekend he again called for more emphasis on the development of clean energy.

But top Democrats said that reallocating the money that way would allow Republicans to accuse Democrats of picking winners and losers in the energy industry. At the same time, the strict focus on the deficit could cause unrest among Democrats who support alternative energy projects.

Last week’s sudden dip in oil prices, which could show up at the pump soon, might also sap momentum behind the tax measure.

Don Stewart, a spokesman for Mr. McConnell, noted that Democrats typically criticize oil companies when gas prices are high. He pointed to remarks made by Democrats at a 1974 Senate hearing that echoed the current talk of soaring profits and industry bonanzas.

“These guys need a new playbook,” Mr. Stewart said.

But Democrats said they see themselves as occupying the political and policy high ground in this case. They noted that top Republicans like Speaker John A. Boehner and Representative Paul D. Ryan, the Wisconsin Republican who is chairman of the House Budget Committee, have suggested that industry subsidies might have to be curbed.

Even talk of Republican delaying tactics does not seem to disturb Democrats who are eager to engage in a fight about oil.

“I am happy to have this debate on the floor for days,” Mr. Menendez said.

 

President Heads West to Sell His Deficit Plan

It is the first campaign-style tour for Mr. Obama since he emerged from the sidelines of the deficit debate last week with a speech calling for a mix of long-term spending cuts, tax increases and changes to entitlement-benefit programs.

With its emphasis on cutting the budget, the speech had elements to appease moderates and independents who have been drawn to the calls from freshman Republicans in Congress to rein in government spending. But at the same time, the address was a nod to the liberal wing in his party, with its progressive notes about the government’s responsibility to provide a safety net to its citizens.

The 44-minute speech seemed to win over at least some leading liberal figures — a big first step toward shoring up and energizing his party’s base at the outset of a re-election campaign that will inevitably require him to play to the middle and, potentially, draw renewed ire from the left.

“Undoubtedly, he rediscovered his voice,” said Robert B. Reich, the chancellor’s professor of public policy at the University of California, Berkeley. “Hopefully, this will be his campaign voice.”

The trip, with stops in San Francisco, Los Angeles and Reno, Nev., is also Mr. Obama’s first since the unofficial start of his re-election campaign in Chicago last week.

While he faces a fractured and late-starting field of Republican challengers, some political clouds hang over him, too.

In the latest Gallup tracking poll, Mr. Obama’s approval rating was 41 percent, tied with the lowest level of his presidency. Among Democrats, his approval was 77 percent, four percentage points below his average rating in 2011 and seven points below his average rating since he became president.

It is hard to say whether Mr. Obama’s deficit plan dampened his ratings, since the interviews were conducted on April 12 and 14, before and after the speech. But they clearly reflect worries about the economy and pessimism that the White House will find common ground with the Republicans.

Mr. Reich, who was labor secretary in the Clinton administration, said Mr. Obama’s pledge to defend health care and Social Security would resonate with older voters, who deserted the Democratic Party in the last midterm elections. Democrats, he said, will also respond to Mr. Obama’s vow to raise taxes for higher-income Americans when the Bush administration’s tax cuts finally expire in 2012.

“His language had a kind of ‘read my lips’ quality that will make it hard to retreat from,” Mr. Reich said. “The question remains whether he has closed the enthusiasm gap. I don’t think one speech will do it.”

Mr. Obama acknowledged as much on Thursday, speaking to 2,300 young supporters at Navy Pier in Chicago.

“I know there are times where some of you have felt frustrated because we’ve had to compromise with the Republicans on some issues,” he said. “There have been times people are frustrated because we didn’t get everything done in the first two years. There have been times where I felt the same way you do.”

But Mr. Obama implored the crowd not to lose heart, declaring that the vision of America he laid out in his fiscal speech — one in which “we are connected to one another; that I am my brother’s keeper, I am my sister’s keeper” — would animate his campaign and drive the debate in the 2012 election.

If Mr. Obama sticks to that message, it will cheer other Democratic constituencies, not least the labor movement. Unions were dismayed by the budget deal the White House struck with House Republicans in December to extend the Bush tax cuts, even though it also extended unemployment insurance.

But union officials said Mr. Obama won them back last week. “The rhetoric of the speech was fabulous,” said Thea Lee, the chief economist of the A.F.L.-C.I.O. “It was a strong speech; it was a principled speech.”

Ms. Lee said there was still uncertainty about parts of Mr. Obama’s plan, notably how it would affect taxes. The White House said it could generate $1 trillion in savings from “tax expenditures” — closing loopholes on deductions for charitable donations, interest payments on home mortgages and the like.

For frustrated Democrats, perhaps the only thing better than Mr. Obama’s feisty speech last week about cutting the deficit were the even feistier remarks he made about the Republicans the next evening, at an intimate dinner with campaign contributors in a chic Chicago restaurant.

Speaking into a microphone that he thought was off, Mr. Obama bragged about how he had faced down House Republicans during budget talks. “You want to repeal health care? Go at it. We’ll have that debate,” Mr. Obama said, recalling a testy exchange with an aide to Speaker John A. Boehner. “You’re not going to be able to do that by nickel-and-diming me in the budget. You think we’re stupid?”

The White House said later that Mr. Obama did not regret that his private remarks had been picked up by reporters. And why should he, Democratic loyalists asked.

After a period in which the party faithful fretted that Mr. Obama was giving up too much to the Republicans, those supporters were thrilled to see him come out swinging.

“He needs to be combative,” Mr. Reich said. “The Republicans have been combative since he became president.”