U.S. Trade Deficit Sets Record in Quarter

The deficit in the broadest measure of U.S. foreign trade climbed to an all-time high of $36.28 billion in the July-September quarter, increasing America’s status as the world’s largest debtor nation, the government said Tuesday.

The Commerce Department said the imbalance in the country’s current account was 5.4% higher than the old record of $34.41 billion set in the April-June quarter.

The current account measures not only trade between countries in merchandise but also in services, primarily investment earnings and transfer payments such as foreign aid.

Deficits in the current account have pushed the country in just three years from a position as the world’s largest creditor to the world’s biggest debtor. That means that foreigners now own more U.S. investments than Americans hold in foreign investments.

The United States was in debt to the rest of the world by a total of $107.44 billion at the end of 1985, the first year the country entered a net debtor status since 1914.

The new figures on the current account suggest that debt is hovering around $193 billion, far surpassing the $103.7-billion debt of Brazil, the previous leading debtor nation.

Until five years ago, the country enjoyed a surplus in its current account as earnings on American investments overseas were enough to offset deficits in merchandise trade. But a string of huge merchandise trade deficits has wiped out the cushion once provided by investment earnings.

The United States sustained a record $117.68-billion current account deficit in 1985. For the first nine months of this year, the current account deficit totals $104.73 billion, well on its way to surpassing last year’s record.

Analysts are forecasting that this year’s deficit will near $140 billion, but many economists say the July-September quarter will represent the low-water mark for the country’s trade problems.

They noted that the merchandise trade deficit, after hitting a monthly record in July, had been improving.

David Wyss, an economist with Data Resources, said the current account deficit next year likely would decline to about $127 billion, but this slight improvement would not be enough to keep the country’s net debtor status from continuing to deteriorate, he said.

Some analysts expect the country to owe more than $1 trillion to the rest of the world by the early 1990s, before the U.S. debt load begins to decline.

President Reagan has dismissed concerns about the rapid change in the country’s investment position from largest creditor to largest debtor, saying it shows that America represents a good investment opportunity for the rest of the world. But many private economists have said that paying off the debt burden in future years will reduce America’s standard of living.

“Right now, the Japanese are our bankers, financing the whole U.S. economy living beyond its means. The problem will come when foreigners want their money back,” Wyss said.

For the July-September quarter, the defict on trade in merchandise increased by $2 billion over the previous quarter to $37.7 billion. Imports rose $2.2 billion to $93 billion, with the increase led by a jump in shipments of passenger cars from Japan and South Korea.

Exports increased $200 million to $55.3 billion, as an improvement in farm sales and aircraft and business machine exports offset declines in other categories.

Adding to the $37.7-billion merchandise trade deficit was $4.18 billion in unilateral transfer payments, including foreign aid, an increase of $100 million from the spring quarter.

These figures were offset somewhat by a $5.6-billion surplus in the service category, an increase of $200 million from the spring quarter.