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The deficit with China, which has become a growing target of attack in Congress because of its position as the country with the largest trade gap with the United States, declined by 7 percent to $7.83 billion in March.

Legislation that would impose 27.5 percent across-the-board tariffs on all Chinese imports is gaining support in Congress because of lawmakers' frustration with the refusal of the Chinese to stop linking their currency tightly to the U.S. dollar -- a practice American manufacturers contend gives Chinese companies a tremendous price advantage over U.S. goods.

Global currency markets were roiled overnight by reports that Chinese officials would meet next week with Treasury officials to announce a revaluation of the Chinese currency. Treasury Department spokesman Tony Fratto called those reports inaccurate.

Treasury Secretary John Snow, speaking to reporters Wednesday, noted that a delegation from China's central bank met with Treasury officials Monday to discuss issues surrounding a change in China's currency policy, but he refused to discuss a date when a revaluation might occur.

"The Chinese have made enormous strides in preparing the way for a move to flexibility. We think they are ready. We think the time to act has come," Snow said, repeating the tougher line the administration has been using on the issue for the past few weeks.

Part of the decline in the U.S. deficit with China in March reflected a 21.2 percent decrease in imports of Chinese clothing and textiles. However, Chinese imports of these products are still running 54 percent higher in the first three months of this year when compared with the same period a year ago. This reflects the surge that has occurred after global import quotas were lifted on Jan. 1.

The U.S. textile industry is pushing the administration to re-impose quotas, saying that without the protection the U.S. industry will suffer thousands of job losses.

While the deficit with China was lower last month, the deficit with Japan shot up by 14.1 percent to $7.83 billion. The deficit with Canada declined by 12.5 percent to $5.05 billion but the deficit with Mexico, the other partner in the North American Free Trade Agreement, surged by 16.1 percent to $4.26 billion. The deficit with the 25-nation European Union was up 9.9 percent to $9.31 billion.

The administration argues that the trade deficit primarily reflects the fact that the United States has been growing at a faster rate than much of the world, boosting our demand for imports while the demand for U.S. products has lagged.

Administration officials contend that the way to compete in a global economy is to push to eliminate barriers to sales of American manufactured goods, farm products and services such as banking around the world.

But critics charge that these free trade deals primarily benefit U.S. corporations who are able to shut their U.S. manufacturing plants and move production to low wage countries with free trade deals and then shipment the finished goods back to the United States duty free.

This argument is expected to intensify in coming weeks as the administration tries to round up enough votes to pass the Central American Free Trade Agreement covering six Latin American countries. The leaders of those nations, in an unprecedented move, were on Capitol Hill on Wednesday to lobby as a group for votes to pass the measure.



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