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Overall U.S. trade deficit declined in 2007

/ Source: The Associated Press

Despite a soaring foreign oil bill and another record deficit with China, the overall U.S. trade deficit declined in 2007 after setting records for five consecutive years.

The Commerce Department reported Thursday that the deficit dropped to $711.6 billion last year, a decline of 6.2 percent. The trade deficit with China continued to rise, jumping by 10.2 percent to $256.3 billion. That was the largest gap ever recorded with a single country, as Chinese imports surged despite a string of high-profile recalls of tainted products.

The Bush administration credits its free trade policies for spurring strong growth in exports while critics contend that even with the lower overall deficit, the imbalance is still nearly double what it was in 2001, the year Bush took office.

For December, the deficit fell by 6.9 percent to $58.8 billion, a bigger-than-expected improvement to close out the year.

In other economic news, the Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits fell by 9,000 to 348,000 last week. That was larger than the 6,000 decline that analysts had been expecting.

The country’s trade performance is expected to be a major issue in the upcoming presidential campaign, with Democrats arguing that the huge deficits have contributed to the loss of more than 3 million manufacturing jobs since 2000 as U.S. companies moved production to low-wage countries such as China.

Lawmakers have introduced a variety of bills to impose economic sanctions on China for what they contend are unfair practices such as manipulating its currency to keeps its value low against the dollar, which makes Chinese goods cheaper in U.S. markets and American products more expensive overseas.

The administration opposes these efforts, arguing that they could spark an all-out trade war if China moved to retaliate against U.S. exports. As an alternative, Bush is seeking passage of three pending free-trade agreements with Colombia, Panama and South Korea in an effort to solidify his legacy of pushing free trade deals to promote American exports.