Trade Deficit Posts Its Best Dip in 5 Years

The U.S. trade deficit fell by 14.9% from April through June, the biggest improvement in more than five years, the government reported today.

The Commerce Department said a record level of U.S. exports and the first quarterly decline in imports in three years pushed the deficit down to $29.9 billion in the second quarter, compared to a deficit of $35.2 billion in the first three months of 1988.

That was the biggest quarterly improvement in more than five years and continued a trend that began after the deficit hit a record $41.2 billion in the October-December quarter.

20% Below Record Deficit

For the first six months of this year, the trade deficit, on a balance of payments basis, has been running at an annual rate of $130.2 billion, down almost 20% from the record $160.3-billion deficit suffered in 1987.

Some economists are predicting the trade deficit will drop by close to 25% for the year as a whole, marking the first annual improvement since President Reagan took office.

“We have had a very good six months for trade. It has taken a long time, but the trade deficit is finally turning around,” said David Wyss, chief financial economist with Data Resources Inc., a Lexington, Mass., forecasting firm.

Democrats have tried to make the country’s soaring trade deficits in the 1980s a campaign issue, but Republicans are hoping the voters will focus instead on this year’s improvement, which has made U.S. manufacturing one of the standouts of the economy.

Improvement Confirmed

The new figures confirmed an improvement already evident in the department’s monthly merchandise trade reports. Those figures showed the trade deficit declining 12.8% to $32.6 billion in the second quarter, compared to $37.4 billion in the first quarter. Today’s figures are smaller because they subtract such factors as shipping costs and military sales from the monthly numbers.

The new report said imports edged down 0.8% to $109.6 billion in the April-June quarter, the first quarterly decline since the first three months of 1985. While imports of petroleum products were up by 2.6% to $10.2 billion, non-oil imports fell 1.1%, reflecting a big drop in car shipments as Americans began to balk at higher sticker prices caused by the weaker dollar.

Foreign Car Imports Drop

Foreign car imports from countries other than Canada fell by 12% in the second quarter, led by a 25% decline in shipments from West Germany. South Korean car shipments fell by 19% while Japanese car imports were down 7%.

Average prices for German cars shot up 21% in the second quarter while the average price of Japanese cars rose by 3%.

U.S. exports climbed 5.8% to a record $79.7 billion in the second quarter, reflecting in part a 48% surge in U.S. aircraft sales.

Agricultural exports were up as well, climbing 7% to $9.7 billion, the highest level since the second quarter of 1984.

Corn sales climbed 27%, with much of the gain attributed to increased sales to the Soviet Union and Mexico. Wheat sales were up 10% due to an increase in sales to China while meat and poultry shipments rose 28%, largely due to increased Japanese purchases.

The trade deficit decreased with every major geographic area except for Canada, the country’s largest trading partner, where the imbalance climbed by $500 million to $4.1 billion.

The country’s largest deficit, as usual, was with Japan, an imbalance of $11.9 billion, down $1.1 billion from the first quarter.