U.S. Trade Deficit Improves for 2nd Consecutive Month

The U.S. trade deficit unexpectedly declined in March for a second consecutive month, something that hasn't happened in more than two years. The improvement reflected record U.S. exports and a big drop in the country's foreign oil bill.

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The Commerce Department reported Friday that the gap between what the country sells abroad and what it imports narrowed to $62 billion in March, the smallest deficit in seven months. It was a 5.5 percent improvement from February's $65.6 billion deficit which in turn had fallen from the all-time high of $68.6 billion set in January.

The back-to-back improvement in the trade deficit, something that last happened in October-November 2003, was certain to be welcomed by President Bush, who is facing increasing election-year attacks from Democrats who contend that Bush's free trade policies have put the nation in hock to foreign governments and cost millions of manufacturing jobs at home.

The trade deficit through the first three months of this year, even with the two months of improvements, is running at an annual rate of $785 billion, up by 8.4 percent from last year's record high of $723.6 billion.

The politically charged deficit with China rose by 12.5 percent in March to $15.6 billion even though U.S. exports to China hit an all-time high, led by a big jump in sales of commercial airplanes.

Economists, who had been expecting the deficit would rise to around $67 billion in March, cautioned against looking for any sizable improvements in coming months, given that oil prices have jumped above $70 per barrel.

"The trend in the deficit has stabilized but it is not falling," said Ian Shepherdson, chief U.S. economist at High Frequency Economics, a private consulting firm.

The March deficit was the lowest monthly imbalance since a gap of $58.5 billion last August. The improvement reflected a 1.9 percent rise in U.S. exports of goods and services, which hit an all-time high of $114.7 billion.

The increase reflected strong gains in sales of electric generators, industrial machinery, computers and farm products including corn and soybeans.

Imports of goods and services fell for a second straight month, dropping by 0.8 percent to $176.6 billion. The decline was led by an 8.3 percent drop in petroleum imports, which fell to $22.5 billion, the lowest level since July.

This improvement reflected a 2.7 percent fall in the price of crude oil, which averaged $52.26 for the month. However, analysts cautioned that the oil bill would rise in coming months, reflecting the recent jump in crude oil prices, which hit a record above $75 per barrel in late April.

Critics charge that the administration has failed to attack the unfair trade practices of other nations, in particular China, and argue that this has contributed to a loss of nearly 3 million manufacturing jobs since Bush took office in 2001. During this period, the country has also seen a rise in the outsourcing of white-collar jobs such as service call centers to India and other low-wage nations, raising more concerns that the United States is losing its competitive edge.

The administration counters that all these changes represent globalization and cannot be stopped without erecting costly protectionist trade barriers that would raise prices for American consumers and harm the U.S. economy.

However, the huge trade deficits have triggered a number of bills in Congress that would seek to limit imports. The most prominent is legislation sponsored by Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., that would impose 27.5 percent tariffs on all Chinese imports unless China moves more quickly to allow its currency, the yuan, to rise in value against the dollar.

American manufacturers contend that the Chinese government is artificially depressing the yuan's value by as much as 40 percent, making Chinese goods cheaper for Americans and American products more expensive in China.

The administration on Wednesday refused to brand China as a "currency manipulator" in a semiannual report to Congress, saying the country did not meet the technical requirements for such a designation even though administration officials said China should be moving much more quickly to allow its currency to rise in value against the dollar as a way of correcting a trade gap which hit a record $202 billion last year.

The deficit with Canada narrowed to $10.8 billion in March as U.S. exports to that country hit an all-time high. But the U.S. deficit with Mexico, the country's other partner in the North American Free Trade Agreement, rose to an all-time high of $5.4 billion.

The U.S. trade deficit with the 25-nation European Union jumped sharply to $11.2 billion in March while the imbalance with Japan rose by 6.5 percent to $7.6 billion.

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