WASHINGTON (AP) -- The U.S. trade deficit dropped to a four-month low in June as record exports of farm goods and autos offset a jump in crude oil prices. Imports from China hit an all-time high despite recalls of tainted Chinese products.þþThe Commerce Department reported Tuesday that the trade deficit dropped to $58.1 billion in June, a 1.7 percent decrease from May and the lowest imbalance since February.þþThe decline caught analysts by surprise. They had been looking for a small increase reflecting the fact that global oil prices have been rising.þþU.S. exports and imports both set records in June. Exports of goods and services rose by 1.5 percent to $134.5 billion, reflecting big increases in the sale of farm products such as corn and meat and in semiconductor chips and autos. Imports also set a record, rising by 0.5 percent to $192.7 billion as both the amount of foreign crude oil rose to the highest level in nine months.þþIn a second report, inflation at the wholesale level jumped sharply in July, rising by 0.6 percent, far above the 0.1 percent increase analysts had been expecting. The bigger-than-expected jump reflected sharply higher energy prices.þþThe Labor Department said that core wholesale inflation, which excludes volatile food and energy costs, rose by a much more moderate 0.1 percent, even better than the 0.2 percent gain analysts had expected.þþThe Federal Reserve said at its meeting last week that it still saw the possibility that inflation will not moderate as the biggest threat to the economy. However since that meeting, financial markets have been roiled by problems in global credit markets. That has raised expectations among investors that the Fed will move in coming months to cut interest rates to make sure that widening credit problems don't push the country into a recession.þþThrough the first six months of this year, the trade deficit is running at an annual rate of $705.5 billion, which is down 7 percent from the all-time high of $758.5 billion set in 2006.þþAnalysts believe that the deficit for the full year will show an improvement after five straight years of record imbalances. The belief is that a weaker dollar against the currencies of major trading partners plus stronger global growth will boost exports while a slowing U.S. economy will trim demand for imports.þþThe deficit with China rose by 5.7 percent in June to $21.2 billion, the largest imbalance since January. Through the first six months of this year, America's deficit with China is running 15.3 percent above the 2006 pace, putting the country on track to surpass last year's record deficit with China of $233 billion, the largest imbalance ever recorded with a single country.þþCritics point to the soaring trade gap with China as evidence of the failure of President Bush's trade policies which they contend have led to record deficits through most of this administration and contributed to the loss of 3 million manufacturing jobs since 2000.þþLawmakers are pushing various bills in Congress that would force the administration to take a tougher stance against China, including imposing economic sanctions, unless the Chinese halt what the critics see as unfair trade practices.þþThe Bush administration has come out in opposition to these bills arguing that Treasury Secretary Henry Paulson's efforts to engage China through a new series of high-level discussions between the two countries offers the best prospect for resolving trade differences between the two nations.þþThe debate over China is clouding prospects that the administration will be able to make progress on any of its other trade initiatives in the remaining months of Bush's tenure in office. The administration is hoping to overcome objections and win congressional approval for four pending free trade agreements with South Korea, Panama, Peru and Colombia.þþThe deficit with China is expected to continue rising. The Chinese have already reported a huge trade surplus with the world for July. This is occurring even though Chinese products from toothpaste and tires to toys and pet-food ingredients have been hit by a string of recalls.þþIn June, America's foreign crude oil bill rose by 3 percent to $19.6 billion as the average price of a barrel of imported crude increased to $60.95, the highest level since September.þþAmerica's deficit with Canada, its biggest trading partner, increased by 11.2 percent to $5.8 billion in June while the deficit with Mexico was up 8.8 percent to $6.4 billion. The deficit with the European Union rose by 4.2 percent to $9.2 billion while the imbalance with Japan rose by 6 percent to $6.3 billion.þþ
Source: NY Times
