WASHINGTON (AP) – Getting stocked up for Christmas, U.S. retailers imported boatloads of Chinese-made clothing, cell phones, toys, games and televisions in September.

All those future holiday presents drove America’s trade deficit with China to an all-time high of $23 billion even as the overall trade deficit was falling because of a big drop in oil prices.

American consumers have a seemingly insatiable desire for Chinese products. But many in Congress say the Chinese are unfairly manipulating their currency to make Chinese products cheaper in U.S. markets and American goods more expensive in China.

Efforts to punish the Chinese for their currency policies may make more headway in Congress next year now that Democrats control both the House and the Senate. The Bush administration, however, will argue that slapping penalty tariffs on Chinese products will drive up prices for U.S. consumers.

The Commerce Department reported Thursday that the overall trade deficit declined by 6.8 percent in September to $64.3 billion from a record $69 billion imbalance in August. The $4.7 billion decline was the biggest one-month drop in more than five years.

The improvement came from a 10.5 percent fall in America’s foreign oil bill, which declined to $26.3 billion. The volume of imports fell and crude oil prices had a big decline. They now are about $60 per barrel after hitting $77 per barrel in the summer.

Analysts said the improvements should continue if oil prices do not spike again. But they cautioned against expecting any quick fix in a deficit still on track to set a record for the fifth straight year. They predicted Democrats will likely push to get tough with China.

“With the Congress changing hands, the political pressure on the administration to do something about China is likely to build,” said Joel Naroff, chief economist at Naroff Economic Advisers.

On Wall Street, the Dow Jones industrial average fell by 73.24 points to close at 12,103.30 on Thursday, one day after setting a new closing high.

The deficit with China is running at an annual rate of $228 billion this year, on pace to surpass last year’s $202 billion – a figure that was an all-time high for any U.S. trading partner.

“Clearly, the U.S. needs a serious review of its trade policy. The ‘hands-off, anything goes’ trade policy employed by the Bush administration has not worked,” Rep. Sander Levin, D-Mich., said Thursday.

Democratic Rep. Nancy Pelosi of California, expected to be the new speaker, has been an outspoken critic of China’s human rights record; other Democrats are pushing legislation that would penalize China unless it lets its currency rise in value against the dollar to make U.S. products more competitive in China.

The large decline in oil helped push total imports down by 2.1 percent to $187.5 billion in September. U.S. exports, helped by a big jump in sales of commercial aircraft, rose by 0.5 percent to an all-time high of $123.2 billion.

U.S. Trade Representative Susan Schwab, President Bush’s top trade negotiator, said the continued rise in exports, which have been up for seven straight months, was good news.

So far this year, the deficit is running at an annual rate of $781.6 billion, far above last year’s record of $716.7 billion.

Democrats sought to make Bush’s trade policies a campaign issue. The U.S. has lost 2.9 million manufacturing jobs since Bush took office in 2001; critics blame government trade policies for part of that decline.

“China cheats to gain every advantage it can over U.S. manufacturers,” said Auggie Tantillo, executive director of the American Manufacturing Trade Coalition. Tuesday’s election booted many incumbents who refused to address the offshoring of American jobs to countries like China. We hope the new Congress will act.”

Commerce Secretary Carlos Gutierrez will lead a 25-company trade delegation to China next week in hopes of boosting U.S. exports.

“While China is more open than before, much progress must still be made to provide fair access to American exporters and businesses,” Gutierrez said.

Treasury Secretary Henry Paulson has pledged to pursue currency and other trade issues with China as part of a high-level dialogue with China’s government. The initial meeting will be next month in Beijing.

Alan Tonelson, a trade expert with the U.S. Business and Industry Council, a coalition of small and medium size manufacturers, said the Democratic takeover of Congress could mean legislative gridlock.

“With the next presidential cycle now having started, congressional Democrats may conclude they don’t have to give the president anything on any issue, including trade,” he said.

In other economic news Thursday, the number of people in the U.S. seeking unemployment benefits fell by a better-than-expected 20,000 last week to 308,000, indicating employers are still resisting widespread layoffs even as the economy slows.

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On the Net:

Trade report: http://www.census.gov/ft900

AP-ES-11-09-06 1746EST