Trade Deficits May Be Good for U.S.: Reagan

President Reagan said today that the nation’s massive trade deficit may actually be a good sign for the economy and that he doesn’t expect a recession unless “enough people get frightened.”

Answering questions after a speech at the City Club here, Reagan commented, “Every indice is that we are going to continue to expand.”

But he said he becomes frightened when he reads or hears pessimistic outlooks in the news media, which he said could cause people to spend less.

“If you do that, you have a recession,” Reagan said, adding, “I don’t anticipate a recession unless some of those doom-criers scare the people into one.”

Earlier, Reagan said in a speach to an audience of 1,200 that the trade deficit and huge foreign capital investments in the United States “are not necessarily a sign of an economy’s weakness” and can even be desirable.

‘Enables Us to Buy’

Reagan said that big trade deficits should be reduced over time but that the United States has a big imbalance now “because our growing economy enables us to buy their goods” from other countries.

Reagan asserted that fast-growing economies “often run deficits in the trade of goods and services.. . . The United States, which has been the engine keeping the world economy moving forward, has a trade deficit, because our growing deficit enables us to buy their goods.”

The trade deficit is one of the factors blamed for unease on Wall Street and the October nose-dive in stock prices. New trade figures are due later this week.

In his speech, Reagan made no mention of the stock market’s jitters or of a report he received last week that blamed Black Monday’s 508-point collapse on computerized trading by a handful of the nation’s largest institutional investors.

While the influx of foreign capital and the big trade deficit have caused concern on the markets, Reagan offered a different outlook.

‘A Sign of Strength’

“Trade deficits and inflows of foreign capital are not necessarily a sign of an economy’s weakness,” he said. Indeed, he said, one might argue that “it’s a sign of strength” and that “up to a point (it is) desirable.”

He said America ran a century-long trade deficit for the first 100 years of its existence and, “now, as we are leading a global movement from the Industrial Age to the Information Age, we continue to attract investment from around the world.

“Now, some people call this debt. By that way of thinking, every time a company sold stock, it would be a sign of weakness and it would be much better to be a company nobody wanted to invest in rather than one everybody wanted to invest in.”

Reagan said, however, that the U.S. trade imbalance could be eased if economic allies “become more like us: to adopt low-tax, pro-growth policies; to encourage trade, not discourage it--to make it freer and fairer and more plentiful.”

The budget deficit, on the other hand, “is an embarrassment and a shame--most dangerous, perhaps, because it signals the complete breakdown of one of the most basic functions of the U.S. government.”