Oil import amplifies US deficit gap

Soaring exports of U.S. jetliners and total U.S exports hitting an all-time high were not good enough to keep the U.S. trade deficit from rising to a historic high in August. The reason can be attributed to surging global oil prices which have sent America's foreign-oil bill through the roof.

The Commerce Department reported that the trade deficit rose by 2.7 percent to $69.9 billion. It reported that U.S. companies imported more computers, consumer goods and oil even as they shipped a record amount abroad. The report was read as good news by some U.S. economists, as it showed that consumer spending is holding up even as the economy slows.

Jim O'Sullivan, a senior economist at UBS Securities in Stamford, Connecticut said, “Strength in imports is typically associated with strong domestic demand…both imports and exports are growing solidly lately, which very broadly is a sign of growth.''

Further analysis revealed that the deficit with China widened to $22 billion, up from the previous record of $20.5 billion reached in October 2005. Imports from China increased to an all-time high of $26.7 billion in August whereas U.S. exports to the Asian nation fell to $4.8 billion. The U.S. lawmakers blame an undervalued Chinese currency to be unfairly helping China’s exporters.

The value of crude oil imports rose to $27.2 billion during the month primarily because of increase in the average price per barrel from $64.84 to $66.12. Prices have fallen now and may help reduce the deficit in future. The decline in energy prices during August have come too late and have not helped to make a big difference in the trade balance during the month.

A weaker dollar, which makes American goods cheaper overseas, bodes well for America. It should help pulverize down the U.S. trade deficit in the coming months.