Nation’s Trade Deficit Fails to Improve in May; Even Farm Goods Are in the Red
The nation’s trade deficit failed to improve last month, the Commerce Department reported Friday, as the normal surplus in farm goods slipped into the red for the first time since 1959.
The $14.2-billion trade deficit in May indicated that the decline in the U.S. dollar that began more than a year ago has not yet made a dent in the trade gap even though a less valuable dollar should make U.S. products more appealing overseas and decrease the attractiveness of imported goods in this country.
The figure is based on the government’s preliminary report, which is notoriously subject to major adjustments. In April, for example, the government first reported a trade deficit of $12.1 billion but revised it Friday to $14.3 billion. Later reports are expected to change the numbers again.
Improvement Seen by 4th Quarter
“We should begin to see a real shrinkage in the deficit by the fourth quarter,” said William Cline, a senior economist at the Institute for International Economics. “But, until then, there are a number of anchors that are holding back any improvement.”
A global surplus in grains left the traditionally strong U.S. agricultural trade sector in the red by an estimated $349 million.
“This year has been particularly lousy for major grains,” said Gerald F. Kotwas, a Commerce Department analyst. “Russia hasn’t bought any since before February, and Brazil is growing its own, with a record high harvest.” The unexpected agricultural trade deficit is expected to return to a modest surplus next month, reflecting the effects of lower wheat prices under the recent farm subsidy law.
So far this year, the overall gap between U.S. exports and imports has reached an estimated $69.8 billion, well ahead of the similar $55.7-billion deficit for the same period in 1985. Analysts said they expect the merchandise trade deficit to exceed last year’s record $144.6 billion.
Underlying Improvement
The continuing weakness in the trade figures, however, masks an underlying improvement in the real flow of exports and imports, analysts said.
“In terms of the real economy, exports are rising faster than imports, so we are starting to get some job benefits,” said Roger Brimmer, a senior economist at Data Resources Inc., an economic research firm based in Lexington, Mass. But the deficit figures remain bad because the declining value of the U.S currency--which makes imports more costly and exports cheaper--temporarily exaggerates the trade gap in dollar terms.
Despite the real improvement in trade flows, the widening deficit figures add to the election-year pressures on the Reagan Administration from Congress to accept new protectionist trade measures. And, with agricultural trade slipping into the red, farmers--a traditional bulwark of free-trade sentiment--are being urged to echo the demands of manufacturing industries for a more aggressive U.S. trade policy.
“Our farmers are operating in a situation worse than the dust bowl. Only this time, world markets are blowing away instead of just dirt,” Rep. Tony Coelho (D-Modesto) said. “I don’t see any light at the end of the tunnel for our farmers unless the President decides he wants to finally do something.”
The trade gap is unlikely to narrow substantially until economic growth picks up abroad.
“The rest of the world is still very sluggish,” said David Wyss, an economist at Data Resources. “There’s nobody to sell to.”
Government officials agreed that a major improvement in the trade imbalance depends on an increased demand from foreign nations for American products to help overcome the sustained U.S. demand for foreign goods.
