Another Record Trade Gap

Trade with foreign countries dropped slightly in May, but the gap between exports and imports widened to a record $31 billion, the Commerce Department said Wednesday.

Imports of goods and services to meet still robust U.S. demand dipped 0.3 percent to $116.8 billion despite an increase in the volume of crude oil shipped in.

Meanwhile, exports of U.S.-made goods and services fell 1 percent to $85.7 billion.

The deficit was a bit stronger than the $30.3 billion gap expected by economists surveyed by

The trade gap in April was revised to $30.5 billion from $30.4 billion.

The trade report presents mixed signals for the Federal Reserve. Falling or flat imports over several months would be seen as a confirmation of lower domestic demand, a key goal of the Fed. Lower exports also take pressure off U.S. producers to increase output that could fuel inflation.

But in the long run, the large trade deficits run up in the past two years could put pressure on the value of the dollar. Attracting the foreign capital that finances the deficit could require higher interest rates, just at a time when the Fed may feel interest rates have gone up enough.

The strong dollar has been a major element in keeping domestic prices low in the past few years.

The drop in imports in May was largely due to the 4.9 percent drop in auto imports to $15.7 billion. Imports of capital goods used by businesses and imports of consumer goods both rose slightly to new records. Imports of industrial supplies rose on higher shipments of fuel oil and nuclear fuel materials.

Imports of crude oil were unchanged at $7.04 billion. The average price fell to $24.16 a barrel while the volume rose to 297 million barrels, the highest in nearly two years. The $1.4 billion deficit with the oil cartel nations was the second highest ever as were total imports of $5.4 billion.

The export picture was also muddled.

Exports of capital equipment fell 0.8 percent on decline sales of computer accessories, testing instruments and electric apparatus. However, exports of aircraft and parts rose 21 percent to $4.7 billion. Exports of semiconductors rose 2.9 percent to $4.8 billion.

Exports of consumer goods slipped 0.2 percent as tobacco sales fell 21.4 percent. A drop in industrial supply exports offset a small gain in exports of foods and feeds.

Geographically, the trade gap worsened with every major region. The gap with Canada and Mexico hit a record $6.4 billion. The gap with Western Europe widened to $5.7 billion. The deficit with the Pacific Rim nations grew to $17.4 billion, despite the shrinkage in the gap with Japan to $6.9 billion.

Imports from the four Asian tigers (Singapore, Taiwan, Korea and Hong Kong; Japan and China are "elephants" to market-watchers) jumped 9.3 percent to a record $9 billion. Imports from China increased 10.2 percent to $7.8 billion while exports of $1.5 billion were the largest since October 1998.

©2000, L.L.C