Trade Deficit Widens Record Imports Blamed For Jump In Trade Gap To $10.3 Billion

The U.S. trade deficit soared to $10.3 billion as a flood of Japanese cars produced the biggest gap with Japan in two years - an untimely blow just as the administration stepped up efforts to convince Congress that freer trade is good for the economy.

The Commerce Department reported Thursday that America’s overall July deficit was up 25 percent from June. Imports hit an all-time high while U.S. exports shrank by 1.4 percent.

The politically sensitive deficits with both Japan and China widened considerably and the trade imbalances with Germany, Italy and France surged to records.

So far this year, the trade deficit is running at an annual rate of $114 billion, surpassing last year’s eight-year high of $111 billion.

Critics argued that dramatic midcourse corrections are needed before President Clinton is granted the authority he is seeking from Congress to expand free trade beyond Mexico to the rest of Latin America.

“We need to switch to a strategy that generates good jobs and a high and rising standard of living,” said Robert E. Scott, an economist at the labor-financed Economic Policy Institute.

Various administration officials sought to portray July’s slip in exports as a temporary setback. They insisted that the rising deficits this year were the result of other economic forces, including faster growth in the United States compared to other countries, and a stronger dollar, which makes imports cheaper for American consumers.

But U.S. officials expressed impatience with Japan and China, saying they would push in upcoming meetings for greater efforts to lower barriers to American products.

Private economists, however, expressed doubts that there was much Washington can do in the short run to reverse what they expect will be sizable monthly deficits for some time to come.

Financial markets took the bad trade news in stride. The Dow Jones industrial average rose 36.28 points as investors concluded the swelling deficit would moderate economic growth in the second half of the year, thus keeping inflation under control.

The 1.4 percent decline in exports to $77.4 billion reflected lower sales of American farm products and a variety of manufactured goods.

The 1.1 percent increase in imports, to a record $87.7 billion, was led by a big jump in shipments of foreign autos, led by imports from Japan.

For July, the deficit with Japan surged 27.3 percent to $5.2 billion, the worst performance since June 1995. Trade tensions between the United States and Japan have been rising in recent weeks with U.S. automakers lobbying the administration to file a complaint alleging Japan has failed to live up to the terms of a 1995 agreement to open its market to American cars.

America’s deficit with China was up 9.2 percent, reflecting a surge of Chinese clothing and toys.