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Oil imports widen trade gap in spring

September 18, 2008|From the Associated Press

WASHINGTON — The deficit in the broadest measure of American trade widened in the spring, reflecting a big jump in the country's foreign oil bill.

The Commerce Department on Wednesday reported that the current account trade deficit increased 4.3% to $183.1 billion in the April-June quarter, compared to a revised deficit of $175.6 billion in the first quarter.

The current account is the broadest measure of America's dealings with the rest of the world because it includes not only trade in merchandise and services but also investment flows.

The deficit represents the amount of money the country is borrowing from foreigners.

For all of last year, the current account deficit totaled $731.2 billion. That imbalance meant the country needed to borrow $2 billion every day from foreigners to finance its activities.

So far, foreigners have been happy to sell their products to the United States and take U.S. dollars in payment, investing much of that money in U.S. Treasury securities and American stocks and real estate.

However, there are concerns that this massive transfer of wealth into foreign hands could at some point disrupt the U.S. economy if foreigners decide they do not want to hold as much in dollar-denominated assets.

If they begin dumping their dollar holdings, big declines in U.S. stock and bond prices could follow, sending the dollar sharply lower in value and pushing domestic interest rates up.

The increase in the current account deficit in the second quarter reflected a $5.3-billion rise in the deficit on goods, which increased to a total of $216.3 billion.

The government said that about half of that increase reflected higher payments for energy products.

The country's surplus on services rose to $35.8 billion, up by $1.85 billion. The surplus on investment earnings dropped $5.87 billion to $27.34 billion.

The deficit on unilateral transfers, the category that includes foreign aid, declined by $1.8 billion to $29.9 billion.

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