updated 9/18/2006 9:50:03 AM ET 2006-09-18T13:50:03

America’s deficit in the broadest measure of foreign trade increased in the spring to the second highest level in history, reflecting a big jump in payments for foreign oil.

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The Commerce Department reported Monday that the deficit in the current account rose to $218.4 billion in the April-June quarter, an increase of 2.4 percent over the deficit in the first three months of the year.

The current account is the broadest measure of foreign trade because it covers not only trade in goods and services but also investment flows between countries. The deficit represents the amount the United States must borrow from foreigners to cover the shortfall between exports and imports.

Democrats, hoping to take control of the House and Senate in the upcoming congressional elections, contend that the soaring deficit figures are evidence of the failure of the administration’s free-trade policies. The Democrats contend those policies have left U.S. workers vulnerable to unfair trade practices from other countries and contributed to the loss of nearly 3 million manufacturing jobs since President Bush took office.

The deficits through the first six months of this year put the country on track for a fifth consecutive annual deficit, surpassing last year’s mark of $791.5 billion. The record high for a single quarter was a $223.1 billion imbalance in the October-December period last year.

So far, foreigners have been happy to hold dollars in payment for American purchases of cars, televisions and foreign oil. But the concern is what would happen should foreigners at some point decide they want to hold less in dollar-denominated assets.

A rush for the exits by foreigners could send U.S. stock prices and the value of the dollar plunging and send American interest rates sharply higher.

For the second quarter, the current deficit as a percentage of the overall economy stood at 6.6 percent, the same level as the first quarter.

For the second quarter, the deficit on goods rose to $210.6 billion, an increase of $2.6 billion from the first quarter, reflecting in part the surge in oil prices. America’s surplus on services narrowed slightly to $16.8 billion.

The United States recorded a record deficit on investment flows of $4.2 billion. That meant that foreigners earned more on their U.S. investments than Americans earned on their overseas investments.

This deficit is expected to grow in coming quarters, reflecting the larger and larger amount of U.S. assets that are being transferred into foreign hands because of the huge trade deficits.

The deficit on unilateral transfers, the category that includes foreign aid, increased to $20.4 billion in the second quarter.

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