Inflow of Chinese Goods Slows Down U.S. Trade Deficit Improvements

A huge inflow of Chinese-made toys and Christmas decorations during August limited the improvement in the U.S. trade deficit, which posted its second-worst showing in five years, the Commerce Department said Friday.

The gap between imports and exports worldwide narrowed 6.6% to $10.83 billion in August from $11.6 billion in July, but it was about $2 billion higher than analysts had anticipated.

It was partly overshadowed by a soaring 23% increase in the bilateral deficit with China, which reached a record $4.71 billion as that country once again surpassed Japan as the leading contributor to persistent monthly U.S. trade gaps.

Commerce Secretary Mickey Kantor blamed the rising China gap on “sanctuary markets” that block American-made goods from entering China and attempted to put the best face on the deteriorating trade picture.

“Our trade deficit with China is increasing at an ever-decreasing rate,” Kantor told reporters in a telephone conference, vowing to keep up the pressure on China to open its markets.

August marked only the second month in which China was the No. 1 contributor to the U.S. deficit. The other occasion was in June when a $3.3-billion shortfall was posted.

By contrast, the deficit with Japan fell in August by 11.8% to $3.8 billion.

Economists called the trade report disappointing and said it suggested that third-quarter economic growth slowed even more abruptly than anticipated because exports were not providing the boost to national activity that was expected.

“This will probably see third-quarter GDP [gross domestic product] expectations toned down,” commented David Sloan of IDEA Inc. in New York, “I expect now we’ll probably be back below 2%.”

Republican presidential challenger Bob Dole used trade figures to lash out at the Clinton administration, claiming big monthly deficits “mean that thousands and thousands of American jobs are being given away to foreign countries.”

Dole charged that Clinton’s trade policy was “to sell out American workers and communities to the lowest bidder.”

But financial markets were not dismayed, with stocks and bonds rising.

The United States typically runs a deficit in merchandise trade with the rest of the world that is partly offset by a surplus in services like tourism and insurance.

In August, the merchandise deficit grew 2.9% to $16.99 billion while the services surplus rose 4.4% to $6.15 billion.

Total exports rose 3% to $69.32 billion in August after falling 3.5% in July, while imports grew 1.6% to $80.15 billion after rising 1.3% in July.

Some of the rise in the August gap reflected retailers preparing for an expected strong Christmas shopping season by purchasing more toys and other seasonal goods made in China, analysts said.

Imports of toys and Christmas decorations from China jumped $301.8 million in August while clothing imports rose $86.9 million from July, the department said.

There was major improvement in the trade deficit with Western Europe, which dropped 63.2% to $1.56 billion.

Exports of civilian aircraft rose $497 million to $1.35 billion in August. Analysts had said that Boeing Co. had strong shipments to overseas customers in August.

Imports of crude oil fell to $4.3 billion from $4.7 billion.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The China Factor

While the overall U.S. trade deficit fell last month, the deficit with China continued to grow. Overall U.S. trade deficit and deficit with China, in billions of dollars:

(please see newspaper for full graph)

August 1996:

Overall deficit: -$10.8

Deficit with China: -$4.7

Source: Commerce Department