Trade deficit widens to $40.3 billion

WASHINGTON -- America's trade deficit expanded in July to $40.3 billion as imported goods from China and the quantity of overseas crude oil sold to the United States each hit record highs.

The latest snapshot of the country's trade activity showed that the trade gap grew by 0.7 percent in July from June's $40 billion imbalance, the Commerce Department reported Thursday. July's trade deficit was slightly smaller than the $40.5 billion shortfall economists were predicting.

Imports and exports each posted gains in July; but the dollar amount of imports was larger than the value of exports, thus widening the monthly trade gap.

In a second report, new claims for unemployment insurance filed last week rose by a seasonally adjusted 3,000 to 422,000, a two-month high, the Labor Department said. The report disappointed economists who were calling for a decline in claims and suggested that cautious companies want to keep their work forces lean -- discouraging news for jobseekers.

On the trade front, imports of goods and services came to $126.5 billion in July, the second-highest level on record, and represented a 1.6 percent increase from June. As the United States' economy strengthens, so has Americans' appetite for foreign-made goods.

Exports, meanwhile, totaled $86.1 billion in July, the strongest showing since May 2001, and marked a 2 percent increase from the month before. That offered a hopeful sign that other countries' economies, hurt by a worldwide economic slump, may be on the mend.

The Bush administration believes the way to deal with rising trade deficits is for other countries to remove trade barriers. That would allow U.S. companies to more freely do business in overseas markets, thus boosting America's global competitiveness, the administration says.

Critics say growing deficits are proof that the administration's free-trade policies are not working. U.S. companies have moved operations overseas and imports are flooding into the United States, a situation that has resulted in hefty losses of American manufacturing jobs.

That -- along with a bout of economic hardtimes at home and abroad -- also has hurt the U.S. manufacturing sector.

Manufacturing has lost nearly 16 percent of its work force, or 2.7 million jobs, in a record 37 straight months. Another 44,000 jobs were lost last month.

America's politically sensitive trade deficit with China widened by 13.5 percent from June to July to a record $11.3 billion. Imports from the country in July totaled $13.4 billion, an all-time monthly high.

In a visit to China last week, Treasury Secretary John Snow pressed the administration's case for letting China's yuan -- also known as the renminbi -- to trade freely on world markets.

U.S. manufacturers and other critics say China's fixed-exchange rate is protectionist and that it makes goods produced in China less expensive on world markets and makes foreign imports too costly for Chinese consumers. Critics contend that China's currency policy amounts to an unfair trade advantage and draws manufacturing jobs away from the United States.

On Capitol Hill, Democratic and Republican senators said U.S. workers were being hurt because China was not abiding by World Trade Organization rules

"Let's face reality of what China is doing: They're cheating. They're violating these rules," Sen. George Allen, R-Va., said at a Foreign Relations Committee hearing.

Senators questioned whether the administration hasn't aggressively pressed China on trade issues because it needs Beijing's support in trying to resolve the North Korean nuclear crisis.

James A. Kelly, assistant secretary of State for East Asian and Pacific Affairs, said "the president's policy is that we have to be able to work on all of the issues with China" and that he doesn't believe Snow was restricted in his talks with China.

The United States' trade gap with Japan expanded in July to $5.9 billion from June's $5.4 billion. America's trade deficit with Canada also widened in July to $5 billion, the highest since January 2001.

Meanwhile, the quantity of crude oil imported in the United States in July came to 339.7 million barrels, a record monthly high. That was up from 311.9 million barrels imported in June. The price of crude oil in July rose to $26.70 a barrel, up from $25.50 a barrel the month before.