U.S. Trade Gap Unexpectedly Narrows by $2 Billion

WASHINGTON – The U.S. trade deficit (search) narrowed sharply in June, as improving economic growth overseas propelled exports to their largest monthly increase in three years and imports were unchanged, the government said on Thursday.

The smaller-than-expected trade gap totaled $39.5 billion, down from a revised estimate of $41.5 billion in May. Analysts surveyed before the report had expected the monthly trade deficit to narrow only marginally to $41.6 billion, from the Commerce Department (search) 's earlier estimate of $41.8 billion in May.

U.S. exports of goods and services iise since June 2000. Exports were the highest since June 2001. Capital good exports showed the biggest increase, led by civilian aircraft and computer accessories. Services exports also jumped, setting a record at $25.6 billion.

Overall imports were flat at $124.2 billion, as a sharp drop in consumer products was offset by smaller increases for autos and auto parts, industrial supplies and other goods.

Meanwhile, imports from China hit their highest level in eight months at $12.1 billion. China accounts for about one-quarter of the overall U.S. trade deficit and figures for the first six months of the year are on track to surpass last year's record of $103 billion.

U.S. manufacturers complain that China has gained an unfair trade advantage from pegging its currency to the value of the U.S. dollar. U.S. Treasury Secretary John Snow (search) has said he would raise those concerns when he visits Beijing next month.

The U.S. dollar has weakened against other major currencies over the past year, even as China maintains its fixed exchange rate, which makes U.S. exports more competitive in many markets around the world and helps trim the trade gap.

Gary Thayer, chief economist with A.G. Edwards in St. Louis, said it was "too early to say that the weaker dollar is having a significant impact on trade, but we are starting to see some smaller deficits which would be consistent with the weaker dollar."

Even with the monthly decline, the overall trade deficit remains huge and on track to exceed last year's record of $418.0 billion. The trade gap totaled $244.3 billion for the first six months of 2003, compared to $195.0 billion during the same period last year.

U.S. manufacturers contend the bilateral trade deficit with China could triple over the next five years unless Beijing allows the Chinese currency to trade freely in international markets. They complain the yuan is undervalued by as much as 40 percent because of its peg to the dollar.

However, with China one of the few foreign economies showing strong growth, many analysts doubt the Bush administration will push China very hard on the currency question and jeopardize that growth.