Trade Deficit Falls 12.7%; Rise in Exports Credited

The U.S. foreign trade deficit for the first quarter of 1988 declined 12.7%, the most dramatic improvement in more than five years, as export growth sharply outpaced a rise in imports, the government said Wednesday.

Although part of the improvement was attributed to erratic factors such as lower oil prices, economists predicted a declining trend in the deficit as a cheaper dollar made U.S. goods more attractive overseas.

The report presented the trade figures on a balance-of-payments basis, which excludes military sales and the cost of insurance and shipping.

In the first three months of the year, the deficit shrank to a seasonally adjusted $35.95 billion on a balance-of-payments basis from $41.19 billion in the 1987 fourth quarter, the Commerce Department said.

‘Start of a Trend’

The 12.7% decline was the biggest improvement between quarters since the fourth quarter of 1982 and left the deficit at its lowest point since the second quarter of 1986.

The improvement was new evidence the United States was making progress toward reducing its economic imbalances with trading partners.

“I think it is the start of a trend,” said Fred Bergsten, director of the Institute for International Economics. “The external deficit clearly will be coming down.

“On the other hand, it’s got to be kept in mind that the level of the deficit is still unsustainably high.”

While exports and imports both rose to record levels in the first quarter, exports grew faster. Exports rose $6.66 billion, or 9.8%, to $74.67 billion, while imports were up $1.41 billion, or 1.3%, to $110.62 billion.

The nation is enjoying an export boom that will continue to grow through the benefits of the cheaper dollar and will continue to shrink the deficit, Bergsten said.

“What this indicates is that the lower exchange rates of the dollar has largely restored America’s price competitiveness in the world,” he said, noting that export growth outpaced import growth by 2 to 1 over the past year.

Still Too High

Bergsten said Americans must cut their spending, which continues to bring a disturbingly high volume of imports into the country, if the United States is to erase its deficit.

Thomas Carpenter, vice president of ASB Capital Management Inc., a subsidiary of American Security Bank in Washington, predicted that the country would eliminate its trade gap within two to three years as the country shifted to an export-oriented economy from one based on domestic consumption.

“I continue to believe that the United States is going to be transformed either by our own multinationals, if not by foreign multinationals, into an export-based platform,” he said.

While lauding the improvements, economists agreed that the deficit level was still too high.

“Greater progress will have to be made in reducing the trade deficit and that will only come if the dollar depreciates further,” said Frank McCormick, a Bank of America economist.

For all of 1987, the deficit was a record $160.28 billion on a balance of payments basis, compared to $144.55 billion in 1986.

In the first quarter of 1988, the deficit with Japan dropped $1.9 billion to $12.9 billion, while the deficit with Western Europe fell $3.8 billion to $4.5 billion. The deficit with newly industrialized countries in Asia fell $1.1 billion dollars to $6.9 billion, the department said.

The deficit with Canada rose $1.1 billion to $4.4 billion in the first quarter. With Latin America it advanced by $300 million to $3.4 billion.

Petroleum imports fell 12% to $9.98 billion in the first quarter as the average price dropped to $15.24 a barrel from $17.46 in the fourth quarter.

Non-petroleum imports rose 3% to $100.6 billion in the first quarter, mainly because of increases in imports of non-electrical machinery, cars from Canada and non-ferrous metals.