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U.S. Trade Gap Surges to 20-Month Record in July

By Stuart Auerbach
The Washington Post

The United States merchandise trade deficit surged to its highest level in 20 months in July, largely due to a decline in sales by U.S. companies in key Western European markets that are suffering from slow economic growth, the government said Thursday.

The 16.2 percent increase in the trade deficit, to $7.8 billion, was bad news for the Bush administration, which had been counting on continued export growth to help buoy the U.S. economy. Exports fell 2 percent, to $37.3 billion, from their record heights in June, while imports set a new record of $45.2 billion in July.

Based on figures from the first seven months of the year, the trade deficit is running at an annual rate of $74.5 billion, higher than last year's deficit of $65.5 billion.

"The U.S. economy has lost momentum in ... reducing its trade deficit," said Stephen Cooney, director of international investment at the National Association of Manufacturers (NAM).

President Bush has been pushing export growth as a campaign theme, calling the United States an export superpower and citing the job-creating power of overseas sales.

Commerce Secretary Barbara Hackman Franklin called the economic slowdown overseas and the relative strength of the U.S. economy "contributing factors in increasing U.S. imports and reducing the demand for American exports."

Nonetheless, in this presidential election year, the poor trade performance in July drew sharp Democratic rejoinders.

"The Bush record on international economic policy is no more impressive than his record on the domestic front," said Sen. Paul S. Sarbanes, D-Md., chairman of Congress's Joint Economic Committee.

"George Bush's export engine is coming to a halt," said House Majority Leader Richard A. Gephardt, D-Mo. "The real growth rate in exports has been declining since he became president."

Exports have been the one shining light in the U.S. economy over the past three years, responsible for 70 percent of the nation's slow growth during that period and moderating the depth of the recession. One economist said that life jacket now is threatened by slow growth in Japan and Western Europe, which have reduced their purchases of U.S. products.

"On the export side, the figures reflect the economic difficulties faced by our trading partners, especially in Europe," said Willard A. Workman, international vice president of the U.S. Chamber of Commerce.

Imports edged up by $300 million as U.S. companies bought more diamonds, stereo equipment and clothing from overseas suppliers an expected seasonal increase in purchases of consumer products in advance of the Christmas buying season. But Workman noted that much of the increase in imports was due to currency fluctuations as the dollar increased in value, thus making foreign purchases cost more in U.S. dollars.

Most of the decline in exports was due to a fall in sales of commercial aircraft, the second consecutive month that aircraft sales were off.

"Aircraft sales are particularly volatile from month to month," said the NAM's Cooney. "But the really bad news," he said, is that exports of no other products are expanding "strongly enough to pick up the slack."

For example, while exports of semiconductors rose by $100 million, overseas sales of computers and computer accessories fell, as did exports of oil field and oil field drilling equipment.

With a stagnant economy holding down Japan's purchases of U.S. products and with Japan shipping more goods to the United States, the trade deficit with that nation rose 16.2 percent in July to $3.9 billion, the largest with any country. The nation's second-highest trade deficit, $2.1 billion, was with China. Showing how the economic slowdown in Western Europe is affecting the trade numbers, the United States suffered its worst trade performance in two years with that region, a $1.1 billion deficit.