Trade Deficit Rises To Second Highest Level This Year

Thursday, July 12th 2007, 7:46 am

By: News On 6

WASHINGTON (AP) _ America's trade deficit rose to its second-highest level of the year as the price of imported crude oil jumped and demand for Chinese products remained strong despite recalls of tainted products.

The Commerce Department reported Thursday that the deficit for May rose to $60.04 billion, 2.3 percent more than in April. Most of the deterioration in the trade balance reflected a big increase in the foreign oil bill, which swamped record sales of U.S. products abroad.

The Bush administration said the continued rise in exports validated President Bush's campaign for free trade deals and his opposition to raising import barrier.

``Our strategy is to focus on growing our exports as opposed to introducing protectionist policies to limit our imports,'' Commerce Secretary Carlos Gutierrez said in an interview with The Associated Press.

The administration is working to get Congress to approve free trade deals with South Korea, Peru, Colombia and Panama. The president also wants lawmakers to extend his power to seal trade agreements without congressional intervention. Such authority expired at the end of June.

That effort faces much resistance because of unhappiness over the trade deficits and the loss of 3 million U.S. manufacturing jobs since 2000.

On Wall Street, investors brushed off the rise in the trade deficit to focus on more positive economic developments and pushed stocks to record highs. The Dow Jones industrial average shot up 283.86 points, the biggest one-day gain in more than four years, and closed at 13,861.73, surpassing the record set June 4. The Standard & Poor's 500 index also closed at a new high.

So far this year, the overall trade deficit is running at an annual rate of $709 billion. That is down 6.5 percent from last year's $758.5 billion, the fifth consecutive year that the deficit was a record.

Analysts are looking for the deficit to improve this year. U.S. exports are benefiting from strong growth abroad. Also, the falling value of the dollar against the euro and other currencies lifts exports.

For May, exports of goods and services rose 2.2 percent to an all-time high of $132 billion. That figure reflected big gains in sales of U.S.-made aircraft, electronic products and oil drilling equipment.

Imports also set a record, rising 2.2 percent to $192.1 billion. That included a 6.2 percent jump in petroleum products to $26.6 billion, the highest since last August.

The deficit with China in May rose to $20.02 billion; it's the biggest imbalance since January. While the overall deficit so far this year is smaller than last year, the deficit with China is 17.2 percent ahead of the 2006 pace, putting China on track to surpass last year's record of $233 billion.

Critics said the latest jump in the deficit _ especially the rise in the imbalance with China _ supports their contention the administration is pursuing a flawed trade policy.

Critics also have seized on a string of recalls this year of everything from pet food tainted with an ingredient imported from China to Chinese-made toys, tires and toothpaste as evidence that consumers' safety is being jeopardized.

``China manipulates its currency, exploits workers and environmental standards and exports contaminated food, medicine and products. Enough is enough,'' said Sen. Sherrod Brown, D-Ohio.

Sen. Charles Schumer, a frequent critic of China, said the administration should create an ``import czar'' to coordinate tougher inspections of Chinese products coming into the U.S. Schumer, D-N.Y., said the deficit with China will worsen ``without a trade policy that cracks down on currency misalignment.''

The trade flows in May, which occurred before most of the recalls were announced, showed strong demand for Chinese products. Imports rose by 4.6 percent to $25.3 billion.

Leading the increase were clothing and textiles, but shipments of fish and shellfish also rose. In June, the Food and Drug Administration banned the import of five types of seafood from China after the agency found unacceptable levels of certain types of drugs.

The Chinese government, seeking to reassure the world that it is serious about cracking down on unsafe practices, said Thursday it will begin a daily food safety reporting system next month during test events for the 2008 Beijing Olympics.

The administration is trying to head off legislation that imposed economic penalties against China and has adopted a tougher approach this year.

On Thursday, U.S. Trade Representative Susan Schwab said she would seek creation of a panel at the World Trade Organization to hear a U.S. case against China involving subsidies. Two months of negotiations have failed to resolve the issue.

Economists expect the U.S. deficit with China to keep widening. They note that the Chinese government reported this week another record trade surplus with the world of $26.9 billion in June, almost double the surplus reported a year ago.

But economists said the overall deficit, even with the jump in May, is on a downward trend. They said it should boost economic growth in the just-completed April-June period by about a percentage point, after subtracting almost that much over the first three months of 2007.

In other economic news, big retail chains reported lackluster sales in June. Consumers, battered by high gasoline prices and the weak housing market, cut back on their purchases of discretionary items such as clothing.

But in a sign that the labor market was vibrant, the Labor Department reported that the number of laid-off workers filing unemployment claims dropped to 308,000 last week. That was the lowest in almost two months and a decline of 12,000 from the previous week.