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Trade Deficit Swells to Record $38.5 Billion in August

The U.S. trade deficit swelled to a record $38.5 billion in August, reflecting Americans' hearty appetite for foreign-made clothes, cars and TVs.

The Commerce Department reported Friday that the trade deficit was a sizable 9.7 percent higher than the $35.1 billion trade gap reported for July.

After posting a small improvement in July, the trade deficit mushroomed in August as imports posted a solid increase, but exports fell.

Imports of goods and services rose by 2 percent in August from the previous month to $120.3 billion, the highest level in 17 months. The U.S. economic recovery is helping to boost consumer demand for foreign-made goods. But worries about a strike by West Coast dock workers probably speeded up imports and contributed to the rise, economists say.

"Americans' demand for foreign-made goods is insatiable," said economist Ken Mayland, president of ClearView Economics. "The rise in imports is just another sign that the U.S. economy is in fact growing."

Imports of consumer goods, a broad category including clothes, TVs, VCRs and household appliances, went up by 4.2 percent in August to a record $26.7 billion. Sales of foreign-made cars, trucks and parts to the United States climbed to $17.4 billion in August, a 1.1 percent increase from the previous month.

Imported industrial materials, such as lumber and steel, also went up, but sales of foreign-made "capital" goods, including computers and telecommunication equipment, edged down in August.

Exports, meanwhile, fell by 1.3 percent in August to $81.9 billion. The weakness was broadbased. Exports of automobiles and parts dropped by 4 percent to $6.8 billion. Sales of consumer goods, including household appliances, TVs and VCRS, also went down, as did exports of capital goods, including machinery. Exports of food products and feeds also lost ground. But sales of industrial supplies, including chemicals and plastics, rose 0.5 percent to $13.3 billion.

Although national economies around the globe are regaining strength after a worldwide slump, they are recovering more slowly than the United States, thus restraining demand for U.S. products.

Going forward, a weaker U.S. dollar and healing economies abroad should help bolster U.S. exports, economists say.

High-flying for years, the dollar has recently lost some altitude. But economists say it will take time for that to affect trade flows. U.S. manufacturers say that the strong dollar has hurt them by making their goods expensive overseas.

A sharp rise in America's foreign oil bill also contributed to the trade gap in August. The average price of imported crude oil rose to $24.57 a barrel, the highest since December 2000.

President Bush scored a major trade victory this summer when Congress finally passed the authorization he needs to negotiate new free trade agreements and participate in a new round of global trade talks at the World Trade Organization.

As usual, the country's largest deficit was with China, which in August climbed to a record $10.9 billion. America's deficit with Mexico, its partner in the North American Free Trade Agreement, rose to a record $3.5 billion.