U.S. Trade Gap Hits Near-Record Level in June

The U.S. trade deficit surged in June to $11.31 billion--the second-highest monthly imbalance in history--the government reported Thursday, raising new concerns about the strength of the global economy.

The surprisingly large June trade gap also called into question recent efforts by the U.S. Treasury and the Federal Reserve, along with foreign central banks, to bolster the U.S. dollar’s value against Japanese and German currencies--a strategy that could ultimately make U.S. exports pricier. Until recently, a weak dollar had helped U.S. exports grow by nearly 16% this year compared to 1994.

The deficit--the difference between June exports of $64.5 billion and imports of $75.8 billion--jolted some observers who had predicted that the slowing U.S. economy would inhibit Americans’ spending on foreign goods and services and thus help narrow the trade gap.

But although the Commerce Department reported that June imports did in fact decline by $500 million, sales of U.S. goods and services abroad dropped even more--by $800 million, largely because the weakened economies of Canada and Mexico have clamped off demand from two of the United States’ three largest trading partners. Exports of cars, auto parts and machinery were especially hard hit.

In addition, the continued sluggish economic performance of nations in Asia and Europe, where U.S. companies depend on strong consumer demand, have worsened the export picture for the United States.

Continuing trade deficits are bad for the economy over the long term because they place more dollars in the hands of foreigners, reducing the currency’s value on foreign exchange markets and ultimately making domestic goods more expensive.

Looking for the silver lining, economist Susan Hering of Salomon Bros. said the rising deficit--up 2.4% from a revised May imbalance of $11.05 billion--is due partly to the fact that the U.S. economy is out-performing its trading partners.

“We are still running a substantial trade deficit and improving only slowly,” Hering said. “But we have to take heart that it is leveling off, unlike when it was continually deteriorating pretty much for the last year and a half.”

The June deficit surprised analysts who were expecting exporters to reap the benefits of a dollar that was weak--at least until the U.S. government and foreign central banks intervened recently to boost the greenback’s value against the German mark and the Japanese yen.

But William Cline, senior fellow at the Institute for International Economics, said the positive effects of a weak dollar take a year or so to register fully in export growth. And now, even those benefits may be short-lived.

Some economists contend that the recent intervention was aimed at stimulating the flagging Japanese economy by forcing down the value of the yen.

But Treasury Secretary Robert E. Rubin has denied that the intervention was intended to accomplish this.

A number of economists argue that the June trade report should put pressure on the United States to back off from boosting the currency in favor of encouraging stronger exports of U.S. goods and services.

The Washington Post contributed to this story.