June Trade Gap Narrows, but Import Demand Rises

American demand for imported clothing, toys and electronics continued to climb in June, pushing the trade gap to its second-highest monthly tally, according to figures released Tuesday by the Commerce Department.

June’s $37.2-billion trade deficit narrowed slightly from a record $37.8 billion in May, thanks to increased U.S. exports. Still, America’s consumption of foreign-made goods reached a 15-month high of $119.2 billion in June, capping a second quarter in which the U.S. posted the three largest monthly trade deficits in its history.

Through the first six months of the year, the United States bought $206 billion more in goods and services from foreign nations than it has sold abroad, putting it on pace to log its biggest-ever annual trade deficit.

While that is heightening concerns about U.S. trade policy, economists say there is an upside to the widening trade gap. Ballooning imports signal that American consumers are continuing to spend, helping to prop up the U.S. economy as well as those around the globe.

“The biggest fear right now is that the economy will fall off a cliff if American consumers hold back,” said economist Rajeev Dhawan, director of Georgia State University’s Economic Forecasting Center. “But growing imports mean that demand is picking up, which is a positive sign for the economy right now.”

U.S. exports in June posted a modest 1.7% increase from the previous month. But despite a softening dollar that is making American goods more affordable abroad, U.S. exports for the first half of the year were $476.4 billion, down 8.9% from a year earlier.

A separate tally of state trade statistics showed California exporters fared even worse. California exports plummeted nearly 20% to $46.1 billion in the first half of 2002 compared with the same period in 2001, led by continued steep declines in technology equipment.

California shipped $20.5 billion of computers and electronic equipment in the first half of 2002, a plunge of nearly 26% from the same period in 2001. Other big-ticket goods fell as well, with machinery declining 27% to $4.6 billion and transportation equipment down 25% to $3.4 billion.

Economists are doubtful that spending on high-tech goods and other capital equipment will rebound significantly this year, pointing to continued weakness in California’s export trade for the foreseeable future.

“There’s still too much inventory out there, and demand is weak,” said Steven G. Cochrane, chief regional economist for Economy.com Inc. in West Chester, Pa. “It could be the middle of next year before we see things pick up.”

In fact, California’s exports have dropped so precipitously that one system for measuring export data shows that the Golden State this year has ceded its crown as the nation’s largest exporting state to longtime rival Texas.

According to government trade data compiled by the Massachusetts Institute for Social and Economic Research, Texas logged $46.3 billion of exports in the first half of the year, edging out California for the first time.

But analysts say this “origin of movement” data has reporting limitations that result in the inflation of exports from states with major port facilities. The result, says Sacramento trade analyst Jock O’Connell, is that Texas, a major gateway to Mexico and South America, is credited as the source of exports that actually originated in other states, including California.

Despite the steep decline in high-tech exports, O’Connell said there is “no question” that California, the world’s fifth-largest economy, remains the nation’s top exporter. He said the steady climb in U.S. imports this year probably reflects some concern from retailers about the possibility of labor unrest at West Coast ports. The contract covering 10,500 unionized dock workers at 29 ports expired July 1, heightening concern about a potential strike or slowdown. “Retailers have made a concerted effort to increase their inventory ... to hedge against the possibility of a strike,” O’Connell said.

Many of those goods are coming from China, which posted a record trade deficit of $8.5 billion with the U.S. in June, even though American exports to that nation hit an all-time monthly high of $2.2 billion. The U.S. trade deficit with Japan increased 9% to $5.3 billion, while the gap with Canada, America’s largest trading partner, narrowed 18.9% to $3.4 billion. The U.S. trade deficit with Mexico, its other partner in the North American Free Trade Agreement, slipped 5% to $3.2 billion.