WASHINGTON — The U.S. trade deficit edged down slightly in August, reflecting a drop in foreign oil from record levels. But the politically sensitive deficit with China increased as imports from that country hit an all-time high.

The Commerce Department said Friday the trade deficit declined by 3.5 percent in August to $59.1 billion. The deficit is expected to shrink even further in coming months as a severe economic slump in the U.S. depresses demand for oil and other imported goods.

America's foreign oil bill declined to $43.7 billion in August, down a record $7.3 billion from the all-time high of $51 billion in July. The drop reflected both lower shipments and oil prices.

The big decline in oil lowered total imports to $223.9 billion, the second highest level on record but down by 2.4 percent from the all-time high set in July.

U.S. exports totaled $164.7 billion, also the second highest level on record, but down 2 percent from the July record. Exports have been the standout performer this year keeping economic growth positive.

However, that could be about to change. A growing number of economists believe the renewed turbulence on Wall Street virtually guarantees the U.S. will fall into a recession this year. With the turmoil spreading to other countries, there is a growing worry about a global downturn.

The spreading economic malaise has put a damper on oil prices which surged to record highs in July but since then have fallen dramatically. Oil currently is currently trading around $83 a barrel, far below the record of $147 set in mid-July.

The declines in oil support the view of economists that the trade deficit will show further improvements in coming months, reflecting a lower oil bill and falling demand for other imported goods as the weak U.S. economy depresses demand.

For August, the deficit with China edged up by 1.8 percent to $25.3 billion, the second-highest imbalance on record, as imports from that country rose to an all-time high. The import gain reflected big increases in shipments of toys and games, cell phones and clothing as U.S. retailers stocked up for the holiday sales season.

So far this year, the trade deficit is running at an annual rate of $717.1 billion, up slightly from last year's deficit of $700.3 billion, which had represented the first decline after setting records for five straight years.

Even though the deficit is off its all-time highs, critics say the imbalances are still too high and are putting the country's economic future in jeopardy as the U.S. has to borrow billions of dollars from China and other nations to balance its books, and domestic companies close American factories to move overseas to take advantage of lower wages.

The Bush administration contends its free-trade policies are the only way to move forward in an increasingly global economy. Democrats argue that the administration has not done enough to protect American workers from unfair competition from China and other nations that they contend are not abiding by global trade rules in such areas as worker rights.

For August, the deficit with Canada, America's biggest trading partner, fell by 10 percent to $7.4 billion. The deficit with the European Union dropped 38.5 percent to $6.8 billion.