July Trade Deficit Soars to $16.5 Billion : Higher Oil Imports Help Push Shortfall to Record Pace for ’87
America’s merchandise trade deficit swelled by $800 million in July to reach a record $16.5 billion, with oil imports causing three-quarters of the increase, the Commerce Department said Friday.
The dollar lost value in currency markets, and interest rates rose on the trade news, but financiers had braced themselves for a high deficit figure so there was no panic selling.
“The bottom line today is pessimism, not despair,” said James Cochrane, chief economist for Texas Commerce Bancshares Inc. of Houston.
The deficit rose 5.1% from June because imports grew by $700 million to total $37.5 billion, while exports fell by $100 million to reach $21 billion.
Breaks Old Record
The $16.5-billion shortfall easily broke the old mark of $16.05 billion set in July, 1986.
White House spokesman Marlin Fitzwater said the figures “are not unexpected” and said July traditionally is one of the worst trade months of the year.
“The trend line is moving in the right direction,” he said.
The trade deficit with Japan shrank by $200 million to total $5.1 billion, the Commerce Department said. Meanwhile, the deficit with Western Europe grew $1 billion to total $3.9 billion.
With Taiwan, the deficit remained unchanged at $1.8 billion; with OPEC nations, it grew $400 million to $1.7 billion; with Hong Kong it swelled by $100 million to total $700 million, and with Canada it rose $100 million to reach $600 million.
Oil Imports a Big Factor
Higher-priced energy and more of it generated about $600 million of the $800-million rise in the trade gap. The United States imported 243 million barrels of oil in July, up from June’s 215 million, and paid an average of $19.13 a barrel, 41 cents a barrel above June’s average.
Aside from oil, the country also brought in more clothing and footwear, gem diamonds, telecommunications equipment, electrical machinery, toys and clocks. Imports fell for new passenger cars, auto bodies and parts.
The Commerce Department said exports fell $100 million mainly because the United States exported $600 million less in manufactured goods. Decreases in exports of new passenger cars, office machinery, data processing equipment, motor vehicle parts, power generating equipment, chemicals and various types of machinery led the way.
Those setbacks were partially offset by gains in exports of aircraft and spacecraft parts, soybeans, wheat and corn.
After seven months, the United States was on track to rack up a $168.7-billion deficit for the year, the government said.
Record Deficit Pace
The country had been on a $162.3-billion deficit pace through July, 1986, and ended up recording a $156.2-billion shortfall for the year.
Such numbers angered Sen. Lloyd Bentsen (D-Texas), chairman of the Senate Finance Committee.
“The July trade figures expose for all the world to see the glaring failure of this country’s trade policy and of its energy policy,” he said.
The United States has tried to cut the deficit by reducing the value of the dollar, thus making imports more expensive and U.S. goods more attractive overseas.
U.S. Trade Representative Clayton Yeutter called the report a disappointment. But he pointed out that when inflation and the dollar’s devaluation are taken into account, the deficit actually peaked last September and has dropped 18% in real terms since.
‘Little or No Improvement’
Most private analysts said the fact that trade figures are not adjusted for inflation or seasonal variations makes July’s report look especially bad. “Even if it were a lower number, the fact remains that there’s been little or no improvement in the trade deficit,” said Lawrence Chimerine, president of Wharton Econometrics of Bala Cynwyd, Pa. “We have a very serious, deep-rooted competitiveness problem in this country.”
Michael Evans, a private Washington economist, said the figures are bound to improve in coming months. Energy imports and the landings of manufactured goods have been higher than normal lately because of fears of tensions in the Persian Gulf and uncertainty over what kind of trade bill Congress will pass, he said.
“(This report) is bad, but the bad news is now over,” he said. “The deficit will come down for the rest of the year.”
