6-Month Trade Deficit Is Record $83.9 Billion : May Fuel Protectionist Moves; Experts Puzzled by Falling Dollar’s Failure to Spur Sales Abroad
Oil imports surged in June, helping produce a record-breaking trade deficit for the first half of the year, the Commerce Department reported Wednesday, as President Reagan prepared for a political showdown with a protectionist-minded Congress.
Government officials and economists alike are surprised and disturbed by the failure of U.S. exports to increase significantly, despite the fall in the value of the dollar against other currencies, which makes American products cheaper in foreign markets. It also makes goods imported from abroad more expensive.
The June trade deficit was almost $14.2 billion, $37 million below the May figure. The gap between exports and imports for the first half of the year reached $83.9 billion, compared to $69.3 billion a year earlier. Unless the trade performance improves substantially in the second half, the record 1985 deficit of $148.5 billion will be eclipsed.
Wednesday’s discouraging figures will be used as ammunition by members of the House who want to override the President’s veto of a controversial bill curbing textile imports. The vote on the override, scheduled for next Wednesday, is regarded as a significant test of the strength of protectionist sentiment.
In another delicate trade issue, U.S. and Japanese negotiators met late Wednesday night, hoping to reach an agreement to open Japanese markets to U.S.-made semiconductors, a key component in computer technology. American manufacturers have complained that Japanese firms are dumping low-priced semiconductors in the United States while keeping American-made products out of their own country.
“It’s a real puzzle that things aren’t getting better,” said Kathleen Cooper, president of the National Assn. of Business Economists. Improvements for the rest of this year will be “very small and modest,” said Cooper, who is chief economist at Security Pacific National Bank in Los Angeles.
Foreign Sales Needed
Treasury and Federal Reserve Board officials are convinced that the solution lies with increased consumption of U.S. goods by other nations, notably Japan and West Germany.
“We need more growth outside the United States to see sustained improvement in the (trade) deficit,” Commerce Secretary Malcolm Baldrige said Wednesday. “Overly cautious economic policies are preventing a return to more rapid worldwide growth and a better alignment of world trade.”
The West Germans, worried about a revival of inflation, have been reluctant to stimulate their economy by reducing interest rates. The Japanese also refused to follow the lead of the Federal Reserve Board, which recently began steps to expand the U.S. money supply.
Illusory Rise in Exports
U.S. imports totaled $33.2 billion during June, a rise of $1.6 billion from the previous month. Exports reached $19.1 billion, a gain of $1.6 billion.
However, the seeming improvement in exports was misleading. A large volume of gold, worth $2 billion, had been imported into the United States earlier and was exported to Japan last month.
Although this makes the deficit smaller, it does not create jobs for Americans, as would sales of manufactured products or agricultural goods.
Oil imports surged 21%, with American firms rushing to buy large quantities of low-priced foreign oil. They spent $3.3 billion, compared to $2.8 billion in May.
The value of the dollar has been falling for 16 months but has yet to bring about a significant expansion of exports. Economists are worried but hopeful.
“I think we’re pretty much at the worst, but there is no sense of an improvement yet,” said Richard B. Hoey, chief economist at Drexel Burnham Lambert, a New York-based investment banking firm.
Japanese Cut Profits
Although the falling dollar is likely to make Japanese products much more costly, prices have risen comparatively little. Japanese firms apparently are willing to accept sharply eroded profit margins because they are “reluctant to give up market share,” Hoey said.
Japan normally has the biggest trade advantage with the United States. But Western Europe had a slightly bigger surplus last month.
“I am telling my European clients not to get warm and comfy,” said John C. L. Donaldson, a Washington trade consultant. “The pressures in Congress for protectionism are building,” he said, adding: “Republican senators are distancing themselves from the Administration on South Africa, why not on trade?”
Cars a Leading Import
The leading imports during June included new cars, clothing and shoes, electrical machinery, telecommunications equipment and computers.
Major exports included aircraft and parts, office machines and equipment, electrical machinery, automobile and tractor parts and chemicals.
