AP
Trade deficit surged to 16-month high in July
Thursday September 11, 11:18 am ET
By Martin Crutsinger, AP Economics Writer
Trade deficit rose to 16-month high in July as record oil imports offset strong export growth


WASHINGTON (AP) -- America's trade deficit shot up in July to the highest level in 16 months as oil imports hit an all-time high, offsetting strong export growth. The deficit with China climbed to the second highest level on record.

The Commerce Department reported Thursday that the deficit rose by 5.7 percent to $62.2 billion in July, much worse than the $58 billion deficit that Wall Street expected. It pushed the gap between what America imports and what it sells abroad to the highest level since March 2007.

The trade deterioration reflected record crude oil prices in July that helped push America's foreign oil bill to an all-time high of $51.4 billion, up 13.7 percent from June.

The big rise in oil prices, with the average barrel of imported crude jumping to a record $124.66, boosted overall imports by 3.9 percent to a record $230.3 billion.

That increase offset another strong showing for U.S. exports which rose by 3.3 percent to a record $168.1 billion. There were big gains in overseas sales of commercial aircraft, computers and U.S.-made cars. Exports have been the major bright spot for the U.S. economy while the country has been battered by a prolonged slump in housing, rising unemployment and a severe credit crunch.

The Bush administration points to the export gains as justification for its support of free trade. Democrats contend the administration's pursuit of free-trade agreements left U.S. workers exposed to unfair competition from low-wage countries with poor environmental records such as China.

They blame the loss of more than 3 million manufacturing jobs since Bush took office in part on the soaring trade deficits. The jop losses have hit hard in key presidential battleground states such as Michigan, Ohio and Pennsylvania.

Democratic presidential candidate Barack Obama has said he will renegotiate the North American Free Trade Agreement with Canada and Mexico to get greater protection for U.S. workers. Republican John McCain has accused Obama of seeking to erect protectionist barriers that will make America less competitive in the global economy.

In July, the politically sensitive deficit with China increased 16.1 percent to $24.9 billion, the second highest gap on record.

Critics contend the administration has not done enough to combat unfair Chinese trade practices. U.S. manufacturers say the Chinese keep the yuan undervalued by as much as 40 percent against the American dollar. That makes Chinese goods cheaper for American consumers while making U.S. products more expensive in China.

"Washington needs to stand up for American workers and manufacturers before hundreds of thousands of more good jobs move offshore," said Scott Paul, executive director of the Alliance for American Manufacturing.

Even with the widening of the overall deficit in July, many economists noted the continued strong growth in exports. They said this should add a full percentage-point to economic growth in the current July-September quarter. While that would be just one-third of the positive growth trade added in the second quarter, it would still be welcome news.

Going forward, the trade performance will also be helped by the big decline in oil prices, which have dropped from a record of $147 per barrel set in early July to close to $100 per barrel currently. Some of the gains from falling oil prices are expected to be offset, however, by weaker growth in key export markets such as Europe and Japan and by the recent rise in the value of the dollar, which will make U.S. goods less competitive, analysts said.

"Growth in the rest of the world is weakening and the dollar is rising, so the environment for U.S. exporters will not be as favorable as over the past year,' said Nigel Gault, chief U.S. economist for Global Insight. Still, he predicted that exports will grow by a solid 6.6 percent in 2009, just slightly slower than this year.

So far this year, the overall deficit is running at an annual rate of $719.8 billion, up 2.8 percent from the imbalance for all of 2007. Last year marked the first decline in the deficit after setting records for five straight years.

The July deficit with Canada, America's largest trading partner, rose to $8.3 billion, the highest imbalance since January 2006. U.S. exports to Mexico hit a record, pushing the overall deficit with that country down to $5.5 billion, a drop of 4.1 percent from June.

The deficit with the 27-nation European Union surged by 33.8 percent to $11 billion in July as imports from Europe hit an all-time high.