Oil Helps Swell July Trade Gap

The U.S. trade deficit widened sharply in July to a record $68 billion, as oil import prices and demand for foreign goods and services rose to new highs, a government report showed Tuesday.

The trade gap swelled 5% from June for the biggest month-to-month gain in nearly a year, surprising analysts who had expected surging oil prices to only slightly widen the deficit.

The trade shortfall was expected to weigh on economic output in the third quarter. Imports replace many products that could have been made in the United States, so a widening deficit is a drag on growth.

However, some saw a silver lining because oil prices have fallen about 20% since setting a record above $78 a barrel in July. Light crude for October delivery was trading in New York around $64 a barrel on Tuesday.

The Commerce Department report showed U.S. exports dropped for the first time in four months but were still the second-highest on record. Civilian aircraft accounted for much of the export decline.

Democratic Party officials seized on the record trade gap as evidence that Bush administration trade policies have failed.

“We are on pace this year to have a trade deficit larger than $800 billion. And despite this record-setting number, we continue to negotiate trade agreements ... that leave us naked to competition that is neither free nor fair,” said Rep. Xavier Becerra (D-Los Angeles).

Oil prices have fallen in the last week as tensions over Iran’s nuclear program have eased and the U.S. summer driving season has ended. On Monday, the Organization of the Petroleum Exporting Countries agreed to keep pumping at the high level of 28 million barrels a day.

Imports of industrial goods and materials, capital goods and consumer goods also set records in July, reflecting continued strength in the U.S. economy. Imports from China and the European Union set records.

U.S. exports of consumer goods and auto products set records in July, although overall exports fell slightly.