The Commerce Department reported Wednesday that the gap between what the United States imports and what it sells to foreign countries narrowed by 9.2 percent in March to $54.99 billion, down from the record monthly deficit of $60.57 billion set in February.
Even with the big improvement in March, the deficit through the first three months of this year is still running at an annual rate of $696 billion, 12.8 percent higher than the $617.08 billion record set for all of 2004. Critics say the widening trade gap demonstrates the failure of the Bush administration's free trade policies.
The March improvement reflected a 1.5 percent increase in exports of U.S. goods and services, which rose to an all-time high of $102.2 billion, the fourth straight monthly record. The March improvement reflected gains in a wide range of products from commercial aircraft and telecommunications equipment to farm products and art work.
Imports, which had hit a record high in February, fell by 2.5 percent to $157.19 billion, reflecting a big drop in imports of foreign cars and in textile and clothing imports from China. This helped to offset a 4.1 percent increase in America's foreign oil bill, which rose 4.1 percent to $18.9 billion, the second highest level on record.
The deficit with China, which has become a growing target of attack in Congress because of its position as the country with the largest trade gap with the United States, declined by 7 percent to $7.83 billion in March. The narrowing trade gap reflected in part a 21.2 percent drop in imports of clothing and textiles in March.
However, Chinese imports of these products are still running 54 percent higher in the first three months of this year when compared with the same period a year ago. This reflects the surge that has occurred after global import quotas were lifted on Jan. 1.
The U.S. textile industry is pushing the administration to re-impose quotas, saying that without the protection the U.S. industry will suffer thousands of job losses.
While the deficit with China was lower last month, the deficit with Japan shot up by 14.1 percent to $7.83 billion. The deficit with Canada declined by 12.5 percent to $5.05 billion but the deficit with Mexico, the other partner in the North American Free Trade Agreement, surged by 16.1 percent to $4.26 billion. The deficit with the 25-nation European Union was up 9.9 percent to $9.31 billion.
The administration argues that the trade deficit primarily reflects the fact that the United States has been growing at a faster rate than much of the world, boosting our demand for imports while the demand for U.S. products has lagged.
Administration officials contend that the way to compete in a global economy is to push to eliminate barriers to sales of American manufactured goods, farm products and services such as banking around the world.
But critics charge that these free trade deals primarily benefit U.S. corporations who are able to shut their U.S. manufacturing plants and move production to low wage countries with free trade deals and then shipment the finished goods back to the United States duty free.
This argument is expected to intensify in coming weeks as the administration tries to round up enough votes to pass the Central American Free Trade Agreement covering six Latin American countries. The leaders of those nations, in an unprecedented move, were on Capitol Hill on Wednesday to lobby as a group for votes to pass the measure.