News > Economy
U.S. trade gap hits record
September 21, 1999: 11:37 a.m. ET

July deficit reaches $25.2B as gaps with W. Europe, Japan, China widen
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NEW YORK (CNNfn) - The nation's trade deficit widened to a record in July, the U.S. government said Tuesday, as trade gaps with Western Europe, Japan, China and Canada rose to new highs.
     Economists saw the growing gap as another reason for the Federal Reserve to raise interest rates.
     The trade deficit rose to $25.18 billion, the Commerce Department said, compared with June's $24.60 billion, and was much higher than the $23.8 billion economists surveyed by Reuters were expecting.
     U.S. imports rose for a seventh consecutive month, rising to a record $104.22 billion from $103.23 billion in June, as American companies and consumers bought a wide range of overseas products from computers to luxury cars.
     The surge in imports far outpaced U.S. exports, which rose to $79.04 billion from $78.62 billion in June.
     "The U.S. economy is probably growing at a pace that cannot be sustained over the long run," said Robert Blake, senior economist at NatWest Global Financial Markets. "In our opinion, that means the Federal Reserve is going to need to act to restrain growth more dramatically than the market expects."
     Blake said the Fed will be on hold when it meets next month, but will move on interest rates in November.
     "Next year we're looking for a Round Two of Fed tightening," Blake said. "We're looking at 6 percent and beyond for the first half of next year."
     Tony Crescenzi, chief bond strategist at Miller Tabak, said the export increase indicates that manufacturing, which he called "the missing link in the economy," has picked up as well.
     "Now there are very few areas that the Fed can look for potential drags on growth," he said. "It's just another reason to consider raising rates."
     Crescenzi said there's a fifty-fifty chance the Fed will move in October, and it probably will wait for "a little news" and act in November. Should the Fed raise rates in November, he said, it likely will give off signals before making the actual move.
     "The markets, in a sense, will already have discounted the move," he said. "By preparing the market beforehand, the Fed will have already have had an impact on the markets and, hence, the economy, ultimately."
     The trade deficit with Western Europe rose 38 percent to a record $6.82 billion in July, up from $4.94 billion in the previous month. The deficit with China climbed to a record $6.31 billion from $5.67 billion in June, while the deficit with Japan set a mark by reaching $6.78 billion in July compared with $6.20 billion the prior month.
     Commerce Secretary William Daley said, "The U.S. trade deficit will likely remain at high levels in coming months. The major reason is that the American economy should continue to grow at a solid pace, supporting continued growth in imports."
     Daley urged China to open its markets.
     "If China truly wants to join the World Trade Organization, the Chinese government must open her markets to foreign goods and services," he said.
     The deficit with Canada rose to a record $3.29 billion, up from $2.57 billion. However, the gap with Mexico narrowed to $2.11 billion from $2.46 billion in June.
     The Commerce Department said U.S. service providers, including insurance companies and travel agents, had a record $23.21 billion in overseas sales in July.
     The goods deficit was a record $31.7 billion, while the services surplus reached $6.6 billion. Back to top
     --from staff and wire reports.


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U.S. Commerce Department

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