Oil imports widen May trade deficit

An increase in oil imports drove up the U.S. trade deficit in May to the largest imbalance since October 2008.

The nation's deficit widened to $50.2 billion, up 15.1 percent, exceeding economists' estimates, from a revised $43.6 billion in April, the Commerce Department said Tuesday.

Exports dropped 0.5 percent to $174.9 billion and were $1 billion less than April. Imports in May were up 2.6 percent, or $5.6 billion, to $225.1 billion as oil prices reached their highest levels in nearly three years.

Oil prices fell in June, signaling that a more positive trade report from last month is highly likely. A barrel of oil rose to more than $108 in May, the highest level since October 2008.

Without oil factored in, the trade gap increased to $19.8 billion from $17.5 billion in April.

The U.S. gap with China increased to $25 billion in May from $21.6 billion the previous month, the largest gap since November, according to the Commerce report.

The deficit with Japan fell 26.4 percent to $2.6 billion, as Japanese imports were still hampered by disruptions caused by the earthquake and tsunami that struck the nation in March.

Those supply chain delays have created a shortage of auto and other parts at U.S. factories, slowing production. As Japan recovers and the supply chain rebounds, imports should increase, economists say.

The U.S. manufacturing sector has led the nation's economic recovery, and many factories rely on Japan to increase production.

There has been growing pressure from lawmakers for the Obama administration to take more aggressive steps to force China to let its currency rise at a faster rate against the dollar. Lawmakers and manufacturers argue it is undervalued by about 40 percent, giving China a trade advantage.

"Congress could do something today to begin to turn the tide: pass bipartisan legislation to deter China from manipulating its currency," said Scott Paul, executive director of the Alliance for American Manufacturing.

"It will reduce the budget deficit, grow American jobs and reduce China’s foreign reserves," he said.

The U.S. trade deficit with China was $273 billion last year, the largest deficit ever with any country, prompting calls from Capitol Hill and the manufacturing sector to cite China as a currency manipulator

So far, the administration hasn't taken that step. China has argued it must let its currency gradually appreciate so it doesn't harm the economy.

"The Treasury Department has let China off the hook five consecutive times by refusing to name it as a currency manipulator, despite overwhelming evidence to the contrary," Paul said. "This is simply inexcusable."