The Commerce Department reported yesterday that the 8.9 per cent improvement in the deficit in July followed a 16.9 per cent surge in June which had pushed the trade gap to a record $55.02 billion (45.53 billion euro). Nevertheless, the $50.15 red-ink figure was the second highest imbalance on record.

Even with the slight narrowing, the trade deficit through July is running at a record annual rate of $581 billion, putting the country on track to surpass last year’s all-time high deficit of $496.5 billion. The country’s exploding trade deficit has become an issue in the presidential race with Democratic challenger John Kerry contending that President George W Bush has not done enough to protect American workers against unfair competition from low-wage nations with poor records on labour rights and environmental protection.

Kerry singles out China as the chief culprit in that regard. The new report showed that America’s deficit with China hit a new monthly record of $14.9 billion (12.4 billion euro), leaving the imbalance with China so far this year 28 per cent above last year’s level. The US deficit with China hit $124.1 billion (then 109.4 billion euro) last year, the largest imbalance ever suffered with a single country.

Critics contend that the Bush administration has not done enough to force China to open up its markets to US exports of manufactured goods and farm products or to pressure the Chinese to stop managing its currency in such a way that it gives Chinese products an estimated 40 per cent price advantage over US goods.

The administration on Thursday rejected a request from a coalition of businesses and labour unions that it pursue an unfair trade case against China over the currency issue.

The administration said its diplomatic efforts to lobby China to change its currency policy were beginning to show results. But Kerry slammed the decision as another example of Bush’s failure to stand up for American workers.

US exports of goods and services rose by a solid 3 per cent last month to $95.86 billion (79.74 billion euro), reflecting strong gains in shipments of autos and auto parts, civilian aircraft and computers. Shipments of American farm products actually fell by 0.5 per cent in July to $4.47 billion, led by declines in shipments of soybeans and wheat. Imports, which had risen for 10 straight months, finally retreated slightly, falling 1.4 per cent to $146 billion (121.4 billion euro), still the second highest level of imports on record. The decline reflected a 9.4 per cent drop in imports of crude oil and other petroleum products, which fell $13.75 billion.