Trade Deficit Falls as Dollar, Oil Prices Drop
Falling oil prices and fewer purchases of foreign industrial goods helped cut the nation’s merchandise trade deficit by more than $2 billion during April, the Commerce Department reported Friday.
Economists were encouraged by the news and said that U.S. companies are beginning to feel the impact of increased sales here and abroad, stimulated by the decline in the relative value of the dollar.
$12-Billion Trade Gap
The trade gap was $12.1 billion last month, a significant improvement from March, when the value of imports surpassed exports by $14.5 billion.
But the narrowing trade gap, although welcome, occurred too late to avert an impending political struggle over trade between President Reagan and congressional Democrats, who hope to make the loss of jobs to exports an election-year issue.
The Democratic-controlled House recently passed a bill that would curtail some of the President’s discretion in trade issues and force him to impose quotas or other penalties against countries that run large trade surpluses with the United States.
Reagan struck back hard in a speech Thursday, denouncing the bill as “kamikaze legislation” that could plunge the United States into “the steepest nose dive since the Great Depression.”
Ironically, the political fight may reach an election-year climax just as the country is moving away from record trade deficits. The dollar has declined about 30% in relation to other currencies in the last 14 months, making imports more costly for U.S. consumers while lowering the price of American-made goods for foreign consumers. Although the dollar rose sharply Friday, most economists believe that the downward trend will continue.
The improvement in trade is a gradual one, with foreign companies initially taking lower profits and then reluctantly raising prices as they struggle to keep their share of the American market.
“It’s a good picture, finally,” said Kathleen Cooper, president of the National Assn. of Business Economists. Although the trade deficit is still huge, the economy has made “the beginning of the turn,” said Cooper, who is senior vice president and chief economist at Security Pacific National Bank in Los Angeles.
Imports totaled $30 billion last month, down from $33.4 billion in March. However, exports also fell, dropping to $18 billion from $18.9 billion.
The sharply reduced price of oil, $14.93 a barrel compared to an average of $25.63 a barrel in the previous six months, helped lower the nation’s import bill. Spending for crude oil and refined products dipped to $2.1 billion, the lowest total since 1975, an era of much cheaper oil.
The cost of manufactured goods purchased from abroad fell to $23.1 billion, down $2.2 billion from a month earlier. Major import categories include automobiles, clothing, telecommunications equipment, computers and office machines.
“I’m optimistic that our trade imbalance is beginning to right itself,” said Arthur Levitt, chairman of the American Stock Exchange. Price increases for imported merchandise “are starting to affect buying patterns and are encouraging consumers to purchase domestically produced goods,” he said.
Business Expansion Seen
As the dollar continues to decline, U.S. firms will be expanding to meet the increased demand for their goods. “Many companies are critically aware of the new opportunity this offers them and will take advantage of it,” said Ronald Utt, associate chief economist at the U.S. Chamber of Commerce.
The comparative value of the dollar will probably fall an additional 15%, bringing about a significant reduction in the trade deficit, which totaled $148 billion last year, said C. Fred Bergsten, director of the Washington-based Institute for International Economics.
Prices for imports already are rising in response to the persistent decline in the dollar.
The cost of imported goods should climb at an annual rate of 5% or 10% over the next six months, said Richard M. Young, director of macro-economic services at Chase Econometrics of Bala-Cynwyd, Pa., a consulting and forecasting firm. By contrast, the overall inflation rate faced by consumers, restrained by falling oil prices, should range between 3% and 4%, he said.
The relatively cheaper dollar promotes exports by making U.S. products less expensive. Although export sales dropped by $900 million in April, experts said that the disappointing performance is less significant than the general trend, which shows rising sales in recent months.
The most important exports last month included computers and other office equipment, aircraft and parts, electrical machinery and parts for automobiles and tractors.