Despite export gains, trade deficit hits record high

Exports of U.S. jetliners soared, courtesy of Boeing's recent success. Shipments of U.S. farm goods hit an all-time high, and so did total U.S. exports.

But those gains were not enough to keep the U.S. trade deficit from rising to a historic high in August as surging global oil prices sent America's foreign-oil bill through the roof.

The Commerce Department reported Thursday that the trade deficit set a record for the second consecutive month, rising by 2.7 percent to $69.9 billion.

The report was read as good news by some economists, who said the gain in imports showed that consumer spending is holding up even as the economy slows. A weaker dollar and expansion in Europe and Asia are helping boost exports; at the same time a reduction in the deficit will be gradual because the economy is still growing faster than many of its counterparts.

"Strength in imports is typically associated with strong domestic demand," said Jim O'Sullivan, a senior economist at UBS Securities in Stamford, Conn. "Both imports and exports are growing solidly lately, which very broadly is a sign of growth."

The politically sensitive deficit with China widened to $22 billion, exceeding the previous record of $20.5 billion reached in October 2005. Thursday's report showed that imports from China increased to an all-time high of $26.7 billion in August. U.S. exports to the Asian nation fell to $4.8 billion.

The figures may aggravate tensions with U.S. lawmakers who say an undervalued Chinese currency is unfairly helping the Asian nation's exporters. While the Chinese yuan has been allowed to gradually strengthen, Thursday's numbers show it has done little to correct the imbalance with the United States. The yuan last month had the biggest gain of any month since the country ended a link to the dollar in July 2005.

Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., last month agreed to drop their legislation to levy tariffs of 27.5 percent on imports from China. The measure was aimed at forcing that country to raise the value of its currency. They said they will work on new legislation next year that would prod the Chinese without running afoul of global trade rules. More than two dozen bills have been tabled in Congress seeking action against China.

"This new trade number should send up a red flag to anyone who cares about the competitiveness of the American economy, said Rep. Phil English, R-Pa. "There's going to be enormous pressure in the Senate to move a China currency initiative. We can no longer be the default market that China is allowed to dump into by devaluing their currency."

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 expert selected by Paulson to lead the effort, was resigning for personal reasons after less than a month on the job.

The deficit adjusted for changes in prices, figures the government uses in its calculation of gross domestic product, widened in August to $60.2 billion, the highest since January. The figures suggest the trade balance will detract from U.S. economic growth in the third quarter.

"Trade will still be a drag of about 0.8 percentage point on third-quarter growth," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.

Growing economies overseas are also allowing for increased exports. U.S. capital-goods exports increased $1.3 billion in August, led by more overseas shipments of commercial aircraft, industrial machines and computers.

Boeing reported it shipped 21 aircraft to foreign customers in August, up from 18 in July.

A weaker dollar, which makes U.S. goods cheaper overseas, also will help grind down the U.S. trade deficit in coming quarters, economists said. The dollar has declined 2.2 percent this year against a basket of currencies of major trading partners.