June trade deficit rises to $27B, imports increase
WASHINGTON -- The U.S. trade deficit edged up slightly in June as imports rose for the first time in 11 months, another sign that the worst recession since World War II is beginning to loosen its grip on the economy.
The Commerce Department said Wednesday that the deficit rose 4% to $27 billion, from May's $26 billion. The May imbalance had been the lowest deficit in nearly a decade.
While the politically sensitive deficit with China widened in June, the imbalance so far this year is running below last year's record pace. More good news for American exporters came as the U.S. defeated China in a major case before the World Trade Organization which could provide significant market opportunities for U.S. producers of everything from CDs and DVDs to music downloads and books.
The bigger June deficit reflected an increase in imports for the first time in nearly a year, an indication that demand in the U.S. is starting to revive.
In a good sign for American producers, exports rose for the second straight month. That could be a signal global demand also is starting to rebound.
Imports of goods and services climbed 2.3% to $152.8 billion. A 23.8% jump in petroleum to $21.5 billion led the increase. That was the largest amount this year, reflecting higher volume and rising oil prices. Imports of other products also rose, led by autos, computers and civilian aircraft.
Exports rose 2% to $125.8 billion, good news for America's manufacturing sector, which has seen demand slump domestically and in key foreign markets as the recession that began in the U.S. in December 2007 spread worldwide. Big gains in shipments of semiconductors, civilian aircraft and engines, and telecommunications equipment led the overall export increase.
Meanwhile, the WTO ruled that China had acted improperly by forcing America media producers to route their business in China through Chinese state-owned companies, a decision that could set a larger precedent for U.S. automakers and other American firms.
U.S. Trade Representative Ron Kirk called the ruling a "significant victory for America's creative industries."
On Wall Street, stocks rose in light trading as investors awaited the Federal Reserve's interest rate announcement. The Dow Jones industrial average added more than 115 points in morning trading, reversing their big plunge on Tuesday. Broader indices also gained.
Even with the increase in exports and imports, the overall deficit is running well below last year's levels. Through the first half of this year, the deficit is running at an annual rate of $345.9 billion, about half the $695.9 billion imbalance for all of 2008.
Economists believe the deficit will widen slightly in coming months but will still finish the year far below the 2008 level. They expect the imbalance to begin to rise again in 2010 as the U.S. and global economies start to mend.
The deficit with China increased 5.4% to $18.4 billion, the highest level since January. But for the year, that deficit is running 13.1% below last year's record pace.
The Obama administration sought to play down trade tensions between the two nations during recent high level meetings. The change in tone partly reflects the growing dependence of the U.S. on the willingness of China, the largest holder of U.S. Treasury securities, to keep buying U.S. debt as the federal budget deficit soars to record levels. The deficit has soared due to massive spending by the administration to jump-start the economy and deal with the worst financial crisis since the Great Depression.
However, U.S. manufacturers have criticized the administration for not pressing the Chinese to do more to alter currency policies they contend are among the major reasons for America's huge trade gap with China, the largest with any country.
The economic troubles have increased political pressure to raise trade barriers to protect domestic industries in both the U.S. and China. A Chinese trade official said Wednesday a U.S. complaint that China's tire imports were harming American tire manufacturers violated trade rules overseen by the World Trade Organization.
"I believe the case is neither supported by facts nor does it have valid legal grounds," said Fu Ziying, a deputy commerce minister. "It is against basic WTO principles and looks like trade protectionism."
Besides tires, Washington has launched a series of investigations into whether Chinese exporters were dumping goods in the U.S. including wooden bedroom furniture, honey, candles, gift boxes, industrial chemicals and fresh garlic.
Global weakness has been a problem for many American companies, including Caterpillar, Deere & Co. and Boeing.
Delayed revivals overseas likely will hinder a broad rebound in the U.S., but most analysts still expect the American economy to grow a bit later this year.