Trade deficit narrows to lowest level in 19 months

AP Economics WriterWASHINGTON (AP) -- America's trade deficit shrank to $27.1 billion in August, the lowest level in 19 months, as the weak U.S. economy cut further into Americans' appetite for foreign-made computers, televisions and other consumer goods.

The Commerce Department reported Friday that the August deficit was 7 percent below a July imbalance of $29.2 billion. The improvement reflected a 1.1 percent drop in imports, the fifth straight monthly decline, and a small 1 percent increase in U.S. exports.

America's deficit with China surged to $8.1 billion, the highest level since last October, while the deficit with Japan shrank.

So far this year, the U.S. trade deficit is running at an annual rate of $360 billion, an improvement over the all-time record deficit of $375.7 billion set last year.

The Bush administration had been hoping to shrink the trade gap but it had wanted to accomplish that feat by boosting U.S. exports rather than seeing import demand shrink because of a weak U.S. economy.

Many analysts believe that the United States is now in a recession, pushed over the edge by Sept. 11 terrorist attacks. Even before the terrorist attacks, weakness in the world's largest economy had spread overseas, dampening activity in Japan and Europe.

The administration contends that in the face of this global slowdown it is even more imperative to grant President Bush the authority he needs to pursue new trade liberalization efforts, including the launch of a new round of global trade talks next month under the auspices of the World Trade Organization.

Bush was in Shanghai, China, on Friday, hoping to win support for his free trade agenda from the other leaders at the Asia-Pacific Economic Cooperation summit.

However, critics contend that the free trade policies pursued by Bush and Bill Clinton before him have cost thousands of American jobs in such key industries as steel. They argue that no further agreements should be negotiated without adequate safeguards to prevent unfair competition from nations with lax labor and environmental standards.

The $27.1 billion deficit in goods and services for August was the lowest imbalance in nearly two years, since a $26.4 billion gap in January 2000.

The 1.1 percent decline in imports pushed them to $111.6 billion, also the lowest level since January 2000. Demand for foreign-made airplanes computers was down by $174 million while demand for televisions, clothing and other consumer goods declined by $277 million. Oil demand was off a slight 0.1 percent to $8.54 billion as the volume of crude oil shipments declined and the price per barrel fell to $22.15, compared to $22.34 in July.

Bucking the trend of falling imports, demand for foreign-made cars and auto parts jumped by $597.

U.S. exports rose by 1 percent to $84.5 billion, but the small rebound came after the biggest drop in exports on record in July. Sales of U.S. agriculture products rose by $249 million with shipments of corn, soybeans and rice all posting gains. Exports of industrial engines and electric generators were up in August but sales of computer chips and computers fell. Exports of American-made cars and auto parts rose by $459 million.

By country, America's deficit with China remained the largest for any country, climbing by 8.2 percent to $8.1 billion even though U.S. exports to China hit an all-time record of $1.9 billion. The United States is hoping that China's admission to the WTO will lead to big reductions in that country's trade barriers which American farmers and manufacturers have complained are costing them billions of dollars of lost sales annually.

The deficit with Japan shrank by 9.8 percent to $5.4 billion in August, the smallest monthly level since a $5.0 billion deficit since June.

America's deficit with Canada, its biggest trading partner, narrowed slightly to $4.4 billion in August, compared to $4.7 billion in July. The deficit with Mexico, the other partner in the North American Free Trade Agreement, narrowed to $2.5 billion in August, compared to $2.9 billion in July.

The deficit with the 15-nation European Union fell by a sharp 30 percent to $4.9 billion in August.

------On the Net:

Commerce Department trade report: http://www.census.gov/foreign-trade/www/