WASHINGTON - America's trade deficit is soaring and the once high-flying dollar has sunk to record lows against Europe's common currency. But the Bush administration has reacted with remarkable calm to developments that raise worries about a possible dollar crisis.
Treasury Secretary John Snow, when asked, sticks to his standard comment that the administration's position in favor of a strong dollar has not wavered.
Beyond such utterances has come no single government action. During its four years in power, not once has the administration intervened in currency markets to support the dollar or done anything else to stop the dollar's slide.
At one point last week, the greenback hit an all-time low when it took $1.30 to buy one euro, the common currency used by 12 European nations. That rate was down 8 percent from where the dollar stood in relationship to the euro just three months ago.
The slide means that a vacation for Americans in Europe is now more expensive, and European products coming into this country will cost more.
Most economists say the dollar, already down by about 10 percent over the past two years against a market basket of foreign currencies, has yet to reach its lowest point. In fact, some think the dollar needs to decline by 10 percent more to deal with climbing U.S. trade deficits.
"The trend to a weaker dollar is going to continue. The trade deficit is just too big," said David Wyss, chief economist at Standard & Poor's in New York.
The dollar's record low against the euro coincided with the government's report that the United States was running a trade deficit through September at annual rate of $592 billion. That compares with last year's record $496 billion.
As a result, the country is having to borrow almost $600 billion from foreigners this year to pay for the imported cars, televisions and other items Americans are buying.
Foreigners so far are more than willing to lend the money. The unsettling worry, however, is what could happen if foreigners suddenly lost interest in holding dollar-denominated investments. The outward rush from U.S. stock and bond markets could send stock prices crashing and interest rates soaring.
That is one reason many analysts believe the administration is taking the right approach on the dollar: insist in public statements that it supports a strong dollar but do nothing to stop the slide.
"The administration doesn't have any problem with a weaker dollar, but they don't want to say anything publicly for fear of roiling the markets and creating some sort of crisis," said Mark Zandi, chief economist at Economy.com.
As the dollar falls, analysts expect that the United States will start to see the benefits in its trade balance. A weaker dollar makes U.S. goods cheaper and more competitive on foreign markets. It also makes imports pricier for Americans, thus helping domestic manufacturers.
For an administration that has endured the loss of 2.7 million manufacturing jobs over the past four years, anything that offers the potential of lifting the fortunes of U.S. manufacturers has definite appeal.
The dollar's slide has been most pronounced against European currencies, but it has fallen only slightly against currencies in Asia. That is where the United States is running its biggest trade deficits.
China has tied its currency, the yuan, at a fixed rate to the U.S. dollar. Japan, South Korea, Taiwan and other nations in the region have intervened massively to keep their currencies from strengthening against the dollar, to keep from losing their own trade advantages.
U.S. manufacturers contend that China's tight peg to the dollar has undervalued the Chinese currency by as much as 40 percent, giving Chinese companies a huge competitive advantage over U.S. manufacturers.
The administration has pressed China to change its currency practices. So far, however, the Chinese contend they cannot move to flexible exchange rates until they make further improvements in their weak banking sector.
The administration rejected a request Friday from 30 members of Congress to pursue an unfair trade practices case against China over the currency issue. Administration officials insist their diplomatic efforts eventually will produce results.
Frank Vargo, vice president for international relations at the National Association of Manufacturers, said it was possible that China might move to fixing the yuan's rate at a higher level in relationship to the dollar as an interim step toward allowing market forces to set the currency's value.
"We don't want to do anything that will make China unstable. We just want to get our trade relationship back on a more normal basis," Vargo said.
Still, there are those who worry about the administration's various moves to allow a weaker dollar.
A Wall Street Journal editorial warned, "More than one White House term has been damaged by currency crises" while a New York Times editorial on Saturday said the administration was engaging in "an unwieldy and risky attempt" to reduce the country's trade imbalance.
But many private economists say the United States has no choice but to let the dollar weaken at a gradual pace if it wants to deal with ballooning trade deficits.
"A crisis comes if the adjustments happen too quickly and you get a loss of confidence," Wyss said. "The world's central banks have the tools to keep that from happening."
