WASHINGTON – America's trade deficit narrowed slightly to $28.8 billion in July as a big drop in imports of cars, oil and other foreign products offset the biggest fall in U.S. exports on record. The U.S. deficit with Western Europe set a record and the imbalances with both Japan and China widened signficantly.
The Commerce Department reported Wednesday that the July trade deficit was 0.8 percent smaller than the June imbalance of $29.1 billion.
However, the improvement, rather than signaling economic strength, was a reflection of widespread weakness both in the United States, which has been struggling with a pronounced economic slowdown for more than a year, and in the rest of the world, which has also begun to slow sharply.
The spreading weakness overseas pushed U.S. exports of goods and services down by $2.1 billion in July, the biggest monthly drop on record. The 2.5 percent fall in percentage terms left exports at $83.7 billion for the month.
Imports fell for the fourth straight month, a decline of 2.1 percent, which pushed the total down to $112.6 billion, the lowest level since January 2000.
While the Bush administration had been hoping to reduce America's record trade deficit, it wanted to achieve that goal by spurring greater sales of exports, not by a global economic slowdown.
The situation has grown worse following last week's terrorist attacks, which analysts believe could push the United States, and possibly the entire global economy, into a full blown recession.
Even before the attacks, U.S. manufacturers have been forced over the past year to lay off more than 1 million workers. They had been pressuring the administration to abandon its strong dollar policy, which they have blamed for pricing their products out of overseas markets and opening them to increased competition at home from lower-priced foreign goods.
Boeing Corp. said Tuesday night it would be forced to lay off as many as 30,000 workers. Those job losses were on top of thousands of layoff announcements already made by U.S. airlines, who have been forced to curtail operations following last week's hijackings.
With the improvement in the July trade deficit, the imbalance so far this year is running at an annual rate of $365 billion, down slightly from the all-time record imbalance of $375.7 billion set last year.
The administration is hoping to win congressional renewal of the negotiating authority it will need to strike new free trade agreements and to complete a new round of global trade talks, which are expected to be launched at a World Trade Organization conference in November.
But critics contend that the huge trade deficits run up in recent years reflect the failure of free trade policies pursued by this administration and the Clinton administration. They argue that U.S. workers are being put at a competitive disadvantage by countries with poor records on worker rights and environmental protection.
For July, America's deficit with Western Europe nearly doubled to a record $8.6 billion as American exports to that region fell to their lowest level in two years.
The deficit with China rose 13.2 percent to $7.48 billion, the highest level since last November. The imbalance with Japan was up 18.9 percent to $5.93 billion as American exports to that country fell to lowest point since May 1999. Japan, the world's second largest economy, is struggling to emerge from a decade-long period of economic weakness.
Overall, U.S. exports of a wide range of products fell in July. Agriculture products dropped by $22 million to a total of $3.89 billion with sales of meat, soybeans and sorghum all down. Exports of U.S. autos and auto products dropped by $408 million while sales of electric generators, commercial airplanes, computers and other capital goods fell by $630 million.
On the import side, America's foreign oil bill fell by 7.9 percent to $8.6 billion. The price per barrel of crude oil dropped to $22.34 while the volume of shipments rose by 3.8 percent.
Imports of foreign cars dropped by $399 million while other consumer imports were down by $232 million. Capital goods, including computer chips, computers and electric generators dropped by $762 million.