Trade Deficit With China Up

WASHINGTON — As the nation’s capital readies for a visit by Chinese President Jiang Zemin, the government reported Tuesday that the August trade deficit with China hit record levels and helped push the trade deficit to its highest level in seven months.

A rush by retailers to stock up on Chinese-made toys for Christmas, combined with bulging oil imports, helped the deficit rise 3.4% to $10.36 billion--the highest since $11.61 billion in January--instead of fall, as many private economists had predicted.

While imports from China soared to $6.06 billion, U.S. shipments to China tumbled to $898 million, their lowest level since September 1996. The result was a record $5.16-billion deficit in the politically sensitive trade relationship with the Chinese.

The numbers provoked a warning to Beijing just days before Jiang’s visit, during which China is expected to announce several billion dollars in acquisitions of U.S. products in a bid to lower the deficit.

“That will not continue without there being a political reaction,” Commerce Secretary William Daley told reporters, referring to the growing trade gap with China. Persistent deficits with China and Japan remain a “major concern for this administration,” he said.

The deficit with Japan actually fell 12% to $4.53 billion from $5.16 billion in July, the Commerce Department said.

Analysts said the higher deficits in the third quarter--the gaps have been about $1 billion higher each month than in the second quarter--will slow economic growth from its brisk 4.1% rate in the first half of the year.

Signs of a slowdown would be welcomed by financial markets and policymakers at the Federal Reserve Board, which has been nervous that rapid growth will spark inflation.

Weak economies overseas and the strength of the dollar curbed exports in August while the strong domestic economy sucked in a record total of foreign goods. Exports edged up 0.2% to $77.96 billion while imports rose 0.6% to $88.32 billion.

“A widening trade deficit is a depressant on economic activity since it shows exports are hurting, but it’s not a sign of weakness,” said economic consultant Sam Kahan of ASK Financial Research Inc. in Chicago.

Kahan said the rise in imports reflected strong domestic demand, while the strong dollar was attracting foreign investment even if it does make American products more costly overseas.

“You’re probably talking about a [gross domestic product] number that’s going to be dragged down by about one-half percent,” said Cary Leahey, an economist for High Frequency Economics in New York.

That may keep third-quarter growth under 3%, he said, nearer the 2% to 2.5% rate the Fed presumes means economic growth without inflation.

Oil importers were building inventories before the winter, and crude oil imports hit a record 282.5 million barrels. The average price per barrel of oil rose to $16.94 from $16.50.