Trade Deficit Climbs To Eight-Year High Strong U.S. Economy Fuels Demand For Imported Goods

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 swelled by 13.2 percent, to $10.9 billion, the Commerce Department said Thursday. May was the third straight month the deficit has widened, raising questions whether the economy is growing as fast as previously thought.

“Instead of growing at a 4 percent rate as we previously expected, we now believe that second-quarter (gross domestic product) rose at a 3 percent 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.

Still, 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 in 1992 reporting goods and services monthly.

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

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

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

The overall gap between what America imports and what it sells overseas swelled to an annual rate of $107.6 billion in May.

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.