The deficit fell 6.6 per cent to $10.83 billion in August from $11.6 billion in July, the commerce department said, coming in well above forecasts by private economists for a gap of $8.5 billion.
The gap with China jumped 23 per cent to a record $4.71 billion in August, only the second time that China surpassed Japan as the country with the biggest trade surplus with the United States.
By contrast, the deficit with Japan fell 11.8 per cent to $3.8 billion. In the first eight months of 1996, the deficit with Japan has fallen to $30.36 billion from $42.46 billion in the comparable 1995 period, the lowest since 1992.
The deficit with China swelled to $24.25 billion in the first eight months of the year from $21.8 billion last year, underlining that nation's growing role as a key source of trade tension for the United States.
The US typically runs a deficit in merchandise trade with the rest of the world that is partly offset by a surplus in services like tourism and insurance.
In August, the merchandise deficit grew 2.9 per cent to $16.99 billion while the services surplus rose 4.4 per cent to $6.15 billion.
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Total exports rose 3 per cent to $69.32 billion in August after falling 3.5 per cent in July, while imports grew 1.6 per cent to $80.15 billion after rising 1.3 per cent in July.
Analysts said the report may be another sign of the economy slowing down.
"The deficit is on the bigger side of what I thought we would see," said Robert Brusca, chief economist at Nikko Securities Co. International. "This will subtract from Gross Domestic Product" in the third quarter, he said. GDP is the broadest measure of the nation's economy.
Analysts noted exports rose at a slower pace than in July, though some said that might be at least partly offset by solid domestic demand for less-expensive imported items.
Some of the rise in the August gap reflected retailers preparing for the Christmas shopping season by purchasing more toys and other seasonal goods made in China, analysts said.
Imports of toys and Christmas decorations from China jumped $301.8 million in August while clothing imports rose $86.9 million from July.