U.S. Trade Deficit Grows 13.2% to Worst Imbalance in 8 Years

The United States suffered its worst trade imbalance in eight years in May as its deficit with China almost surpassed that of Japan, which traditionally has the biggest surplus with America.

The U.S. trade gap grew by 13.2%, to $10.9 billion, the Commerce Department said Thursday.

May was the third straight month the deficit has widened, raising questions of whether the economy is growing as fast as previously thought.

“Instead of growing at a 4% rate as we previously expected, we now believe that second-quarter [gross domestic product] rose at a 3% rate and could even be weaker,” said economist Cheryl Katz of Merrill Lynch & Co.

The Clinton administration disagreed, however.

“Today’s numbers are just one of a series of recently released data that show the strength of the U.S. economy,” Commerce Secretary Mickey Kantor contended, noting exports hit a record for the third time in four months.

“Export growth outpaced import growth on a year-over-year basis for the eleventh-straight month, both for overall trade and for merchandise trade,” he told reporters.

But GOP presidential candidate Bob Dole saw the trade figures as an example of Clinton’s failed economic policies.

“Bill Clinton’s record trade deficits are wiping out American jobs and undercutting financial security,” Dole said in a statement released by his campaign.

“We must raise incomes, bring high-wage jobs back to America, eliminate the trade deficit and restore the American dream that is both our strength and our destiny,” he said.

The May gap was the widest since the deficit averaged $12.9 billion per month in the final quarter of 1987. At that time, the government only tracked trade flows in goods and services on a quarterly basis. It started monthly reporting of goods and services in 1992.

Although exports rose 1.1% to a record $69.8 billion in May, imports grew an even larger 2.6%, to $80.6 billion. The deficit is the difference between imports and exports.

In the North American free-trade zone, the trade balance with Mexico rose to $1.589 billion.

Both imports and exports with Mexico reached record highs, suggesting the country is pulling out of consequences of the 1994-95 currency crisis.

To the north, the monthly deficit with Canada, the largest U.S. trading partner, widened 57.7% to $2.548 billion during May. That’s the highest level in almost a decade.

The deficit with China shot up 31% to $3.06 billion, the highest since October 1995. Many economists believe China will soon overtake Japan as the country with the largest surplus in trade with the U.S.

In fact, the deficit with Japan fell 23.7% to $3.13 billion, the smallest since February 1992.

The overall gap between what America imports and what it sells overseas increased to an annual rate of $107.6 billion in May, higher than last year’s $105.1-billion deficit, the worst in seven years.

Many economists attribute the growing deficit to the strong U.S. economy, which feeds American appetites for foreign goods.

Kantor suggested the gap will shrink later this year as the economies of America’s major trading partners improve and boost U.S. business opportunities overseas.

U.S. Trade

Overall trade deficit, in billions:

Mar. 1996: -$10.88

Source: Commerce Department