Trade deficit soars to record reflecting higher oil bill

WASHINGTON (AP) America's trade deficit shot up to an all-time high in the summer, reflecting a huge jump in the bill for foreign oil. <br/><br/>The Commerce Department reported Monday that the current

Monday, December 18th 2006, 11:35 am

By: News On 6

WASHINGTON (AP) America's trade deficit shot up to an all-time high in the summer, reflecting a huge jump in the bill for foreign oil.

The Commerce Department reported Monday that the current account trade deficit increased 3.9 percent to a record $225.6 billion in the July-September quarter. That represented 6.8 percent of the total economy, up from 6.6 percent of the gross domestic product in the spring quarter.

The current account is the broadest measure of trade because it tracks not only the flow of goods and services across borders but also investment flows. The figure is closely watched by economists because it represents the amount of money that must be borrowed from foreigners to make up the difference between what America imports and what it sells overseas.

The current account deficit is expected to hit a new record for the full year, far surpassing last year's $791.5 billion imbalance even though the shortfall for the fourth quarter is likely to show an improvement, reflecting the drop in oil prices after hitting records this summer.

"Lower oil prices, robust export growth and some cooling in import growth should bring the deficit down, beginning in the fourth quarter," said Nigel Gault, an economist with Global Insight, a private forecasting firm.

He predicted the deficit would average around $866 billion this year but shrink to $816 billion next year.

Democrats, who took over control of the House and Senate in the November elections, attacked President Bush's trade policies, charging that the administration has run up record deficits for five straight years by failing to protect U.S. workers from unfair foreign trade practices.

Critics have singled out the biggest culprit as China, the country which is posting the biggest trade surpluses with the United States. A high-level delegation of seven members of Bush's Cabinet, led by Treasury Secretary Henry Paulson, held two days of talks in Beijing last week to launch a new strategic economic dialogue with China aimed at resolving long-festering trade problems between the two countries.

However, the two sides reported no breakthoughs after the initial discussions on the biggest issues such as American manufacturers' complaints that China is manipulating the value of its currency to gain trade advantages.

The $225.6 billion deficit was in line with economists' expectations. It followed a $217.1 billion shortfall in the April-June quarter and topped the previous record of $223.1 billion in the final three months of last year.

The increase in the shortfall last quarter was led by an $8.1 billion rise in the deficit in goods, which was driven higher by surging global oil prices. America's surplus in services, which includes such things as airline tickets, banking services and consultants' fees, rose by $810 million to $18.3 billion.

The deficit in investment flows, meaning that the United States is now having to pay foreigners more than Americans' earn on their overseas investments, rose by $1.6 billion to an all-time high of $3.8 billion.

Economists expect that figure to climb even higher in coming years representing the growing size of U.S. assets now in the hands of foreigners, reflecting all of the trade deficits run up over the past three decades.

The category of unilateral transfers, which includes foreign aid and pension payments to Americans living overseas, rose by $406 million to $21.5 billion in the third quarter.