Trade Deficit Widened in May to $14.4 Billion
After two months of improvement, the U.S. trade deficit widened sharply in May, as Americans bought $14.4 billion more in foreign products, notably oil and autos, than they were able to sell abroad during the month, the Commerce Department reported Wednesday.
The trade figures, which are certain to inflame the protectionist debate on Capitol Hill, agitated the financial markets and sent the dollar into a deep slide. Despite some progress in exports, the United States is on a path that would lead to a $164.8-billion trade deficit for 1987, little better than last year’s record-setting $166.3-billion trade gap.
“The report was disappointing,” said Allen Sinai, an economist at the investment firm of Shearson Lehman Bros. in New York. “The bottom line is, there was no turn in the trade deficit.”
Government officials had been relying on a lower-valued dollar, which makes U.S. exports more cost-competitive abroad and foreign products more expensive to Americans, to assure that the merchandise trade deficit would continue to shrink as it did in March and April. But, even though exports rose $300 million in May, the increase was dwarfed by a $1.3-billion jump in imports.
Nonetheless, the White House sought to interpret the situation as favorably as possible and focused on the export gains. Meeting with a group of minority businessmen, White House Chief of Staff Howard H. Baker Jr. declared, “It won’t be long before the world is complaining about the U.S. trade surplus.”
‘Markets Went Crazy’
Some analysts also pointed out that monthly variations in the trade figures are perfectly normal. But any hopeful glimmers in the report failed to encourage the financial markets, which had been swept earlier by rumors that the figures would show a dramatic improvement in the U.S. trade position.
“When the figure came in at 14.4 (billion dollars) the markets went crazy,” said John H. Green, an economist with Wharton Econometrics, a forecasting and consulting firm in Bala Cynwyd, Pa.
In New York trading, the dollar skidded to 148.85 Japanese yen after the news spread, from 151.25 at Tuesday’s close. It fell to 1.8295 marks from 1.8530 the day before and also slumped against the British, Swiss and French currencies. Gold pushed upward, meanwhile, with one New York bank reporting a late bid Wednesday of $453.25 an ounce, up $6.10 from Tuesday’s closing figure.
According to the Commerce Department, the nation’s bill for foreign oil soared by $530 million in May to a level of $3.5 billion, an increase that reflected greater reliance on foreign oil as well as higher prices. On average, the United States consumed 600,000 more barrels a day than it did in April, when consumption was unusually low. The price of a barrel, meanwhile, rose about 43 cents on average to more than $18.
“The important information in this report is that oil imports are up and oil prices are up,” Green said. “That’s a fact of life.”
In addition, an $800-million increase in manufacturing imports also contributed to the deficit. Japanese automobiles made up the largest portion of that increase, followed by other foreign cars, iron and steel, clothing and other items.
Analysts said a key to the persistent deficit problem is that U.S. export gains, on a volume basis, are offset by the fact that foreign exporters are increasing the prices of their products in this country in response to the weaker dollar, which has hurt their profit margins. And the price increases add to the risk of inflation.
“The volume of exports is improving--but it’s being offset by the prices we’re paying for our imports,” said Jason Benderly, co-director of economics at the Goldman, Sachs brokerage firm in New York. Benderly estimated that the price Americans pay for imports is rising at a 10% annual rate.
The turmoil in the financial world underscores a difficult problem facing the U.S. economy: “If the monthly trade numbers don’t start improving, it’s unlikely the dollar will stabilize,” Benderly said. “But unless the dollar stabilizes, the monthly numbers aren’t likely to get better very quickly.”
Limited Success
Administration officials have promoted a lower-valued dollar rather than protectionist legislation as a way to bolster domestic industries. So far, the policy has had limited success because many Americans have continued to be willing to pay more for foreign goods, contributing to the deficit.
In earlier periods, it has taken about a year for a weaker dollar to be reflected in changed buying patterns and an improving trade situation. But in this case, “We’ve gone 27 months since the peak of the dollar and it hasn’t happened,” economist Sinai said.
Trade with Japan accounted for more than one-third of the deficit in May, as the United States bought $5.1 billion more in goods from Japan than it sold there. Other large imbalances included $1.6 billion with Taiwan, $1.5 billion with West Germany and $1.3 billion with Canada.
White House spokesman Marlin Fitzwater described the trade gap as “discouraging” but added, “We believe the deficit will turn down in the months ahead.”
