Weak dollar helps US trade gap to shrink

America's yawning trade gap is finally shrinking, thanks to the weakness of the dollar.

With the low value of the greenback making US exports more competitive and appearing to depress import demand, the trade deficit posted its biggest fall for six months in April. The shortfall was $58.5bn, a 6.2 per cent drop from the previous month. Having ballooned to a record high last year, it has fallen in three of the past four months. Exports rose by 0.2 per cent to a record $129.5bn, led by aircraft sales, according to the Commerce Department, while imports fell by 1.9 per cent to $188bn. Although imports were depressed by a sharp drop in pharmaceuticals, analysts said cautious US consumers are also shunning dearer foreign goods.

"The trade balance seems to be permanently on the mend," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. "Certainly, trade is going to contribute to growth in the second quarter."

The gloss was taken off the good news, however, by a 12.3 per cent jump in the deficit with China to $19.4bn, its highest since January. The increase will provide ammunition for protectionists in Congress who complain that Beijing is using unfair practices, including keeping its currency artificially low, to boost its exports. Imports from China rose by 6.6 per cent in April, while the value of goods flowing the other way fell by 11.5 per cent. Meetings last month between US and Chinese officials produced agreements on financial services and aviation, but not on exchange rates.

"Americans are impatient to see real change," the US Treasury Secretary Hank Paulson said in a speech this week. "A large section of the American public doesn't believe that the benefits of trade are being shared equally between or within the two countries."

Despite April's improvement, the trade gap remains an unhealthy 5.1 per cent of US gross domestic product, saddling the economy with huge foreign debt and slowing growth. According to Peter Morici, a professor at the University of Maryland School of Business, Americans have borrowed $6 trillion to finance the deficit, and the debt service comes to about $300bn a year.

"Lost growth is cumulative," Professor Morici said. "Thanks to the record trade deficits accumulated over the last 10 years, the US economy is about $1.5 trillion smaller. This comes to about $10,000 per worker."