Trade Deficit Makes U.S. a Debtor Nation 1st Time in 71 Years

The nation’s broadest measure of foreign trade registered a near-record $31.8 billion deficit from April through June, confirming that the country has now become a net debtor for the first time in 71 years, the government reported today.

The Commerce Department said the deficit in the current account was 4.9% higher than the $30.3 billion imbalance suffered in the first three months of the year.

The current account measures not only trade in merchandise but also in services, mainly investment earnings.

Since the nation began the year with only a $28.2 billion surplus in investments, the $62.1 billion in deficits has undoubtedly for the first six months of the year wiped that surplus out.

Commerce Secretary Malcolm Baldrige said in June that it appeared the country had become a net debtor but economists could not pinpoint when the country crossed over. Today’s report provided further confirmation that the country is now a net debtor for the first time since 1914.

More Owed to Foreigners

What that means is that the United States now owes foreigners more than they owe this country.

It also means that the country can no longer look to the flow of dividend and interest payments to U.S. investors to help cover trade balances, since the United States will now be paying out more in such investment payments than it will be receiving.

That means that the nation will have to depend on merchandise trade surpluses--something very unlikely in the foreseeable future--to dig its way out of debtor status.

The current account deficit is likely to top $120 billion this year, making the United States the world’s leading debtor nation, substantially ahead of the previous leaders, Brazil and Mexico.

Near Record Deficit

Today’s report showed that the $31.8-billion current account deficit for the second quarter came near the record deficit of $32.5 billion in the third quarter of last year.

The imbalance came from a record $33-billion merchandise trade deficit, which swamped a small gain in investment and other service receipts.

The trade deficit came from a $2.5-billion drop in exports, which totaled $53.2 billion from April through June as agricultural exports dropped for the second consecutive quarter.

Imports rose $1 billion to $86.2 billion as the demand for petroleum increased sharply, offsetting a slight decline in non-petroleum imports.

Small Surplus Inadequate

The United States ran a small $4.5-billion surplus in investment earnings and other service receipts in the second quarter, but this was not nearly enough to wipe out the trade deficit.

Foreign aid and other transfer payments rose $200 million, to $3.4 billion, as grants to developing countries rose.

While the United States has not run a merchandise trade surplus since 1975, it has been able in the past to rely on Americans’ overseas earnings to make up for the trade deficit.

However, the country posted a record $101.5-billion current account deficit last year and this year’s imbalance is expected to be far above that mark.