1986 Trade Deficit Breaks Record at $140.57 Billion : U.S. Goes Deeper in Hole: World’s Biggest Debtor

The deficit in the broadest measure of U.S. foreign trade soared to an all-time high of $140.57 billion in 1986, pushing the United States further into the hole as the world’s largest debtor nation, the government reported today.

Brazil, which owes $108 billion to foreigners, was the previous debt leader.

The Commerce Department reported that the imbalance in the country’s current account is 19.5% higher than the previous record of $117.68 billion, set in 1985.

The current account measures not only trade in merchandise but also trade in services, primarily investment earnings and transfer payments, such as foreign aid. While the merchandise trade deficits are reported on a monthly basis, the current account deficit is figured quarterly.

Creditor to Debtor

Deficits in the current account have pushed the United States 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, a situation that has not occurred since 1914.

The country was running surpluses in its current account as recently as 1981, 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 current account deficit for the last three months of 1986 rose to a record $36.84 billion, up 4.4% from the previous record of $35.30 billion set in the preceding July-September quarter.

Merchandise Trade

For the October-December quarter, the deficit on trade in merchandise increased by 3.3% to $38.37 billion. Adding to this deficit was $3.95 billion in transfer payments, including foreign aid, made during the quarter.

These figures were offset somewhat by $5.48 billion in net earnings on foreign investments by Americans. While foreigners now own more in American investments than Americans own overseas, the country still enjoys a slight surplus in earnings because the rate of return on many older American investments is higher than foreigners are receiving here.

In a separate report today, the Commerce Department said housing construction rose 2.6% in February to the highest level in 10 months.

It said new homes and apartments were started at an annual rate of 1.85 million units last month after a 0.5% drop in construction activity in January.