- The Washington Times - Thursday, October 12, 2006

ASSOCIATED PRESS

The U.S. trade deficit unexpectedly jumped to a new record in August as energy prices rose and the shortfall with China reached a record high.

The gap between what the U.S. exports and what it imports rose by 2.7 percent to $69.9 billion, marking the second straight month it has set a record, the Commerce Department reported yesterday.

The deterioration in trade was led by another record foreign oil bill, which pushed imports up to a high, swamping a solid increase in exports, which also set a record. The politically sensitive trade deficit with China set a monthly record at $22 billion.

With oil prices falling from the $77-per-barrel level set in July to less than $60 per barrel this week, analysts said the August figure could be the peak for the deficits. But they cautioned that any improvement will come slowly given the huge gap between what America imports and what U.S. companies are able to sell overseas.

Private economists said the worsening trade deficit would likely shave as much as 0.8 percentage point off overall economic growth in the third quarter. Many analysts say the economy will grow by 2.5 percent or less in the second half of the year, reflecting a sharp slowdown in the once-vigorous housing market.

The Federal Reserve, in its latest snapshot of business conditions across the country, said yesterday that the economy continued to grow at a moderate pace in the early fall despite a “widespread cooling” in housing activity.

The widening trade gap in August occurred even though U.S. exports of goods and services set a record, rising by 2.3 percent to $122.4 billion, helped by strong increases in sales of commercial jetliners, drilling equipment and computers.

The increase in exports was offset by a 2.4 percent rise in imports, which also set a record at $192.3 billion, reflecting a big rise in America’s foreign oil bill.

The trade deficit, running at an annual rate of $784 billion through August, is on track to set a fifth consecutive annual record, topping last year’s mark of $716.7 billion.

“How long will the free-trade crowd keep making excuses for an out-of-control trade deficit,” asked Sen. Byron L. Dorgan, North Dakota Democrat, one of the administration’s harshest trade critics.

The deficit with China shot up by 12.2 percent to a record of $22 billion in August and is running 13.5 percent above last year, when it hit $202 billion, the highest ever recorded with a single country.

“This is more evidence that America’s trade policy with regard to China is a complete failure,” said Alan Tonelson, a trade analyst with the U.S. Business and Industry Council, a group of 1,500 small- and medium-size manufacturing companies.

Treasury Secretary Henry Paulson, the former head of Goldman Sachs, announced on a visit to China last month a new high-level dialogue with China aimed at resolving contentious trade issues.

The first meeting is scheduled for December in Beijing, but the effort suffered a setback this week with the announcement that Deborah Lehr, a China analyst selected by Mr. Paulson to lead the effort, was resigning for personal reasons after less than a month on the job.

American manufacturers say China is keeping its currency artificially low against the dollar by as much as 40 percent to make Chinese goods cheaper in the United States and American products more expensive in China.

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