By Vicki Needham - 05/10/12 01:41 PM EDT
The trade deficit is on a path to eclipse last year's record deficit.
U.S. companies hit their highest-ever sales levels to Mexico, Europe and South Korea in March — the U.S. and Korea implemented a trade deal mid-March that could lead to greater export gains down the road.
Despite the impending global recession, demand for U.S. goods and services showed continued strength in the spring.
Still, the trade deficit with the European Union increased to $9.8 billion from $5.9 billion in February, even as U.S. exports rose by a record 11.5 percent to $25.1 billion. Imports from Europe picked up pace, increasing to $35 billion, an increase of nearly 23 percent.
The deficit with China expanded to $21.7 billion, up from $19.4 billion in February, widened by a 12 percent increase in imports after dropping through the first couple of months of the year. Last year, the U.S. had the largest-ever gap with any single country of $295.5 billion, and this year's figure could exceed that at this rate.
"The widening March trade deficit is bad news for the economy," said Scott Paul, executive director of the Alliance for American Manufacturing (AAM).
"For one thing, the expanding trade deficit means that growth in GDP will be lower," he said.
Paul said surging imports indicate that the U.S. and China are falling back into bad habits.
He argues that Beijing has not meaningfully adjusted the yuan’s value against the dollar this year, creating a larger trade gap.
Other groups such as the U.S. China Business Council are less concerned with the currency issue because, during the past several years, it has been proven that the exchange doesn't affect the trade balance between the two nations.
Instead, the group argues that burdensome regulations are what stymie U.S. investment in China.
Last week, Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton met with Chinese leaders in Beijing and came away saying that the nation is making inroads on its currency and the future is "very promising" as China moves toward a more market-oriented exchange rate.
Geithner has urged Chinese leaders to move forward with with promised reforms in its heavily regulated economy.
Meanwhile, congressional lawmakers and manufacturers contend that the Chinese currency is undervalued against the dollar and gives the Chinese an edge in international trade.
In the first quarter, the U.S. economy grew at a 2.2 percent annual rate, the Commerce Department reported last month. A widening trade gap could weigh on the expansion. The second estimate of first-quarter growth is due May 31.