Trade Deficit Narrows to $42.8B        09/09 11:29

   The trade deficit narrowed significantly in July as exports climbed to the 
highest level in nearly two years, reflecting big gains in sales of U.S.-made 
airplanes and other manufactured goods while imports declined.

   WASHINGTON (AP) -- The trade deficit narrowed significantly in July as 
exports climbed to the highest level in nearly two years, reflecting big gains 
in sales of U.S.-made airplanes and other manufactured goods while imports 
declined.

   The July deficit fell 14 percent to $42.8 billion, the Commerce Department 
reported Thursday. That was much lower than economists had forecast. The lower 
trade deficit should give a boost to overall economic growth.

   Exports rose 1.8 percent to $153.3 billion, the best showing since August 
2008, as sales of jetliners, industrial machinery, computers and 
telecommunications equipment all posted large gains. Imports, which had been 
surging, dropped 2.1 percent to $196.1 billion.

   Imports of oil edged up a slight 0.1 percent to $26.8 billion but demand for 
other foreign products fell sharply. Imports of autos dropped by $713 million 
while those for other consumer goods such as clothing, televisions and toys all 
dropped sharply. Demand for business machinery and other capital goods also 
declined.

   The drop in demand for imports reflected the slowdown in the U.S. economy 
during the spring as businesses cut back on rebuilding inventories and consumer 
demand slackened under the weight of high unemployment.

   The surge in the trade deficit in the second quarter had trimmed 3.4 
percentage points in the April-to-June quarter, leaving the gross domestic 
product rising at an anemic rate of 1.4 percent in the spring. The narrowing of 
the deficit in July, if it continues, could give a boost to GDP growth in the 
third quarter.

   Economists at Decision Economics said in a research note that analysts who 
had been expecting 2 percent GDP growth in the third quarter might need to 
revise those forecasts higher by as much as a percentage point.

   Through the first seven months of this year, the trade deficit is running at 
an annual rate of $495.1 billion, 32 percent higher than the $374.9 billion 
deficit for all of 2009, a year when the trade gap narrowed dramatically as a 
deep recession cut into demand for imports.

   While the deficit is expected to increase this year, economists are hoping 
that an improving global economy will boost demand for U.S. exports. So far, 
manufacturing has been a standout performer in what has been a sub-par economic 
recovery.

   For July, the trade deficit with China dropped slightly to $25.9 billion, 
but remained the highest for any country. Through the first seven months of 
this year, the deficit with China is running 17.7 percent above last year's 
pace, spurring increased calls in Congress for a crackdown on what critics see 
as unfair Chinese trade practices such as a currency regime that keeps the 
Chinese yuan lower in value against the dollar. American manufacturers contend 
the yuan is undervalued by as much as 40 percent, making Chinese products 
cheaper in the United States and American goods more expensive in China.

   Given America's high unemployment rate, there is growing pressure to erect 
barriers to protect American workers. Some lawmakers are pushing legislation 
that would impose trade sanctions on Chinese imports unless Beijing moves more 
quickly to allow its currency to rise in value against the dollar.

   The deficit with the European Union jumped by 27.8 percent to $9.9 billion 
in July. U.S. sales to Europe have been hurt by a rise in the value of the 
dollar against the euro earlier this year during the European debt crisis. The 
higher dollar compared to the euro makes American goods less competitive in 
that region while making European products cheaper for U.S. consumers.

   America's deficit with Canada, the country's largest trading partner, 
dropped to $1.4 billion in July, a decline of 44.4 percent, while the deficit 
with Mexico narrowed to $5.3 billion, a decline of 14 percent.

   Chinese President Hu Jintao sought to smooth over recently rocky relations 
with the United States on Wednesday, telling two visiting administration 
officials that he wants to see healthy and stable ties between the two nations.

   Lawrence Summers, head of Obama's National Economic Council, and Deputy 
National Security Adviser Thomas Donilon had productive discussions during two 
days of talks in Beijing, according to National Security Council spokesman Mike 
Hammer. But beyond the positive tone, neither side provided details of any 
agreements that might have been reached during the meetings.

   Treasury Secretary Timothy Geithner on Wednesday noted that China in June 
had announced it would allow its currency to be more flexible in relation to 
the dollar. Since that time, the yuan has risen in value by less than 1 percent.

   Geithner, in an interview on Bloomberg television, said the administration 
would like to see Beijing move more quickly on currency revaluation. The House 
Ways and Means Committee has scheduled a hearing on the currency issue for next 
week.


(KA)