updated 4/13/2007 11:42:08 AM ET 2007-04-13T15:42:08

The U.S. trade deficit improved for a second month as oil imports fell sharply and the politically sensitive deficit with China narrowed to its lowest point in nine months.

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The gap between what America sells abroad and what the country imports dipped by 0.7 percent to $58.4 billion in February, the smallest imbalance since November, the Commerce Department reported Friday.

The improvement came even though exports fell by $2.8 billion during the month, reflecting lower sales of a variety of manufactured goods from computer accessories to industrial machinery and civilian aircraft.

But imports declined by an even larger $3.2 billion with the tab for foreign oil falling to the lowest level in 20 months. However, with oil prices again rising on global markets, that improvement could be short-lived.

The deficit with China, which had shot up in January, declined by 13.3 percent to $18.4 billion in February, the smallest gap since last May.

But even with that improvement, the trade gap with China is still running 25 percent above the pace set at the beginning of 2006, a year when the imbalance for the entire year soared to $232.5 billion. That was the largest deficit the United States has ever recorded with a single country and accounted for one-third of the total U.S. trade deficit last year.

The Bush administration is facing increased pressure from Congress, now in the hands of Democrats, to deal with America's soaring deficit with China.

In response, the administration has toughened its approach this year, filing two cases against China alleging unfair trading practices and imposing stiff penalty sanctions in a dispute involving Chinese government subsidies to paper manufacturers.

China has denounced these moves, raising the question of whether the new get-tough approach will achieve its desired end of lowering the trade gap or whether China will retaliate in some fashion that could spark an all-out trade war between two of the world's major economies.

For the first two months of this year, the U.S. trade deficit is running at an annual rate of $704 billion, down from last year's record imbalance of $765.3 billion. The trade gap has set new records for five consecutive years, a period when the country lost more than 3 million manufacturing jobs.

But many economists believe the trade gap will shrink in 2007, helped by a weaker dollar against many other currencies, which makes U.S. goods cheaper on overseas markets, and stronger growth overseas.

For February, exports of goods and services dropped by 2.2 percent to $124 billion, reflecting declines in a number of manufacturing industries. Imports fell by 1.7 percent to $182.4 billion with the biggest drop occurring in oil shipments, which were down 15.2 percent to $20.7 billion, the lowest level since June 2005.

The improvement in oil reflected a fall in price and a drop in the volume of crude oil shipments. But analysts cautioned that with global oil prices rising in recent days over increased Mideast tensions, the drop in the oil bill may not last.

Critics of administration policies contend the White House must take a tougher approach against unfair practices such as China's currency system, which keeps the yuan artificially low against the dollar, giving Chinese companies price advantages over U.S. producers.

Treasury Secretary Henry Paulson is pressing China to let its currency rise in value against the dollar. Both countries are set to meet Monday on economic issues, but China, in an apparent sign of its unhappiness with U.S. pressure, is sending lower level officials to the annual meeting of the U.S.-China Joint Economic Committee.

Besides the improvement in the deficit with China, the U.S. deficit with Canada dropped by 29 percent to $4.8 billion, the lowest level since December 2003. The deficit with the European Union fell by 2.2 percent to $6.4 billion.

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

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