Exports overwhelm oil import rise

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By David M. Dickson

Exports increased at their fastest pace in more than four years in June, helping to sharply narrow the U.S. trade deficit despite a record rise in America's payments for imported oil.

Exports of goods and services increased $6.4 billion in June to $164.4 billion, while imports increased $4 billion to $221.2 billion, the Commerce Department reported Tuesday. Petroleum imports increased a record $5.7 billion, which meant that non-petroleum imports declined $1.7 billion. The resulting trade deficit of $56.8 billion represented an unexpectedly large reduction from May's revised deficit of $59.2 billion.

"June manufactured goods exports were a phenomenal 17.4 percent higher than a year ago," said Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers.

During the first six months of 2008, Mr. Vargo estimated, the United States compiled a $5.5 billion trade surplus in manufactured goods with the 14 countries that have signed free-trade agreements with Washington.

"The performance of manufactured goods trade is so strong that it is a major offset to the rising deficit in petroleum," he said.

America's trade deficit in petroleum products increased from $133 billion during the first six months of 2007 to $202 billion during the first six months of this year, the Commerce report revealed. Over the same six-month periods, the U.S. trade deficit for non-petroleum goods declined from $264 billion to $213 billion.

Meanwhile, America's surplus in services increased by $24 billion to $75 billion during the January-June period, compared with the like period last year.

Thus, even though the nation paid $86 billion more for petroleum imports during the first six months of this year compared with January-June 2007, its overall trade deficit in goods and services declined by $7 billion.

The performance of the trade sector has kept the U.S. economy growing in recent months despite the ongoing credit crunch, plunging home prices and seven consecutive months of falling employment.

Without the 2.42 percentage points of economic growth contributed by the trade sector during the second quarter, the U.S. economy would have declined by 0.5 percent, according to the Commerce Department's preliminary report on gross domestic product.

In inflation-adjusted figures, which the Commerce Department uses to calculate changes in GDP, the merchandise trade deficit has declined from $61.4 billion in January 2006 to $39.1 billion in June 2008.

Some economists say big trade deficits detract from economic growth over the long run.

"The trade deficits of the last two decades have reduced U.S. growth by 1 percentage point a year," said Peter Morici, a business professor at the University of Maryland.

"Together, petroleum, China and automotive products account for nearly the entire U.S. trade deficit, and no solution to the overall trade imbalance is possible without addressing these segments," he said.