updated 3/9/2007 12:15:09 PM ET 2007-03-09T17:15:09

The trade deficit narrowed slightly in January as U.S. exports rose to an all-time high while imports dropped, sending a hopeful signal that the country’s trade imbalances may finally start to improve this year.

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The Commerce Department reported Friday that the gap between what America sells abroad and what it imports fell to $59.1 billion in January, down by 3.8 percent from a December deficit of $61.5 billion.

The improvement came despite the fact that the politically sensitive deficit with China shot up by 12 percent to $21.3 billion, a development certain to increase pressure on the administration to deal with what critics see as China’s unfair trade practices.

Exports of goods and services rose by 1.1 percent to an all-time high of $126.7 billion in January, reflecting gains in sales of American airplanes, computers and farm products such as soybeans and wheat.

Imports declined a slight 0.5 percent to $185.8 billion. Shipments of foreign cars, clothing, televisions and toys and games all were down. These declines offset a 5.4 percent increase in America’s foreign oil bill, which rose 5.4 percent to $24.5 billion in January.

The trade deficit has set records for five straight years, reaching $765.3 billion in 2006 with one-third of that amount accounted for by the imbalance with China, which jumped to $232.5 billion last year, the largest trade gap ever recorded with a single country.

Those rising trade deficits have come as America has lost 3 million manufacturing jobs since President Bush took office in January 2001, losses that critics blame in part on the soaring trade deficits.

Democrats took control of the House and Senate in the 2006 elections with campaigns that attacked Bush’s free trade policies, arguing that the administration has failed to protect Americans workers from other countries’ unfair trade practices.

Treasury Secretary Henry Paulson this week completed his third trip to China since joining the Bush Cabinet last July. He delivered a speech to the Shanghai stock exchange urging the Chinese government to accelerate the pace of opening its capital markets to U.S. and other foreign companies.

Paulson is also pressing the Chinese to allow greater flexibility in its currency system, a process the United States believes will allow the Chinese yuan to rise in value against the dollar. American manufacturers contend the Chinese are undervaluing their currency by as much as 40 percent to gain trade advantages over American products.

Democrats in Congress are pursuing legislation that would penalize China with U.S. economic sanctions if it does not move faster on the currency issue, but the administration contends such protectionist moves would end up harming American consumers, who have come to depend on cheap clothing and other goods from China.

For January, the jump in the deficit with China reflected big increases in imports of Chinese-made computers, clothing and cell phones.

The drop in the January deficit raised hopes that the trade imbalance will finally start to improve this year. Analysts believe that stronger growth overseas and past declines in the value of the dollar against many currencies will boost U.S. exports while slower growth in the United States will trim the appetite for foreign goods.

The January deficit with the European Union dropped to $6.5 billion, the lowest level in three years. The dollar has fallen in value against the euro, which makes U.S. products cheaper in European markets and European products more expensive in the United States.

The deficit with Canada rose to $6.87 billion, surpassing January’s deficit with Japan, which edged down to $6.5 billion. Japan normally has the second largest trade gap with the United States after China.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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