Trade Deficit Hits Lowest Point in ‘85 : Drop in Value of Oil Imports Cited for August Improvement

Times Staff Writer

The United States in August recorded its lowest monthly trade deficit since December, importing $9.9 billion more goods than it exported, the Commerce Department reported Friday.

Imports totaled $27.3 billion--nearly 8% below the monthly average of $29.6 billion so far this year--while exports stood at $17.4 billion, slightly lower than the $18-billion monthly export average so far this year, the department said.

August showed a moderate improvement over July’s $10.5-billion deficit, itself a significant drop from the near-record $13.4-billion deficit recorded in June.


Commerce Secretary Malcolm Baldrige, cautioning that statistics for one or two months are not enough to mark a clear tendency, nevertheless told Congress that because of new trade policies unveiled this week by the Reagan Administration, “the trend is heading in the right direction.”

But “turning around trade is kind of like turning the Queen Mary,” he conceded in testimony before the Joint Economic Committee.

Oil Imports Decline

Private economists said they were not sure that the rebound could be sustained, noting that much of the drop in imports last month was attributable to falling oil imports at ever-lower prices per barrel.

“Oil was off quite a bit because we have been running through oil inventories, which are very lean now,” explained Robert F. Wescott of Wharton Econometrics in Philadelphia. “They will need rebuilding over the next several months, which will make the trade deficits worsen toward the end of the year.”

He added: “Right now, we’re not seeing any strength on the exports. They are just flat, going nowhere. When we see the exports turn around will be the first sign that we are out of the woods, but that won’t be until the middle of next year at best--provided the dollar keeps falling.”

In an unexpected policy change, Treasury Secretary James A. Baker III met last Sunday with the finance ministers of four major industrial nations to coordinate steps to reduce the value of the dollar, which had reached a historic peak last February.

On Monday, President Reagan unveiled a program of cautious retaliation against unfair trading practices by other countries and a $300-million “war chest” to counter subsidies and below-market pricing tactics by competitors.

Baldrige said the Administration still expects a trade deficit this year of nearly $150 billion, by far the largest ever and a substantial surge over last year’s $123 billion. But he argued that without the moves announced by the Administration this week, the deficit for fiscal 1986 would soar even higher by at least $5 billion or $10 billion.

Even if the new policies are effective and U.S. exports rise, next year still will show a deficit of nearly $135 billion, Baldrige conceded, adding that “trade flows take 18 months to two years to show up. . . . The important thing is that we’re headed the right way.”

Meanwhile, Michael K. Evans, who heads his own Washington economic consulting firm, attributed much of the drop in imports to decisions by multinational corporations to begin switching manufacturing operations back to the United States from abroad, where production costs were far lower during the heyday of the dollar’s overvaluation.

“Now that the dollar is worth less, Caterpillar, for example, can make fewer tractors in Scotland and more in Peoria,” Evans observed. “People who discount the impact of a cheaper dollar on imports forget we live in a global economy now.”

Upward Revision

On an optimistic note, Evans also said he believed that continued improvements in the trade deficit would force the Commerce Department to revise upward its forecast of sluggish 2.8% growth during the third quarter.