Trade Deficit Plunges 28% to 4-Year Low of $9.5 Billion

The U.S. merchandise trade deficit shrank to $9.5 billion in July, the lowest monthly imbalance since December, 1984, the government said today.

The Commerce Department said the dramatic 28% improvement in the trade deficit reflected a small increase in exports and a big decline in imports.

The latest trade deficit was certain to cheer Republican presidential candidate George Bush, who has been trying to deflect charges from Democrat Michael S. Dukakis that the country’s soaring trade deficits demonstrate a major flaw in the Reagan economic program.

The July deficit was substantially better than economists had expected. The government did, however, boost the June deficit to $13.2 billion from the originally reported $12.5 billion.

The June deficit was the biggest trade shortfall since a $14.4-billion deficit in February, a figure that had sent the Dow Jones industrial average tumbling by 100 points.

Commerce Secretary C. William Verity said in a statement that “compared with the same seven months of last year, exports surged 28% while imports rose less than 10%.”

Jay Goldinger, an economist with Capital Insight, a Los Angeles investment firm, predicted that the deficit figures will probably remain in the single-digit range in coming months as U.S. manufacturers continue to reap the benefits from the decline in the value of the dollar.

‘Our Goods Are Cheaper’

“Our exports continue to climb because our goods are cheaper and imports are declining because we have finally found a price high enough to stop consumers from buying imported goods,” he said.

A weaker dollar, in addition to making U.S. products cheaper on overseas markets, makes imports more expensive for American consumers.

For the first seven months of this year, the U.S. trade deficit has been running at an annual average of $137.5 billion, down 19.3% from the record $170.3-billion deficit suffered in 1987.

The significant narrowing in the trade deficit this year has been a major factor behind the economy’s better-than-expected economic performance. Analysts said more than half of all economic growth this year is coming from the narrowing trade gap.

U.S. exports are booming as the weaker dollar has made American goods competitive once again on world markets, a factor that has helped push factory operating rates to the highest level in eight years.

The $9.5-billion July imbalance between exports and imports was only the second single-digit deficit in the last three years and was the lowest since an $8.03-billion deficit in December, 1984. The deficit had declined to $9.76 billion in May.

The July improvement reflected a big 8.9% drop in imports. Exports were up by a smaller 0.7%.

The big drop in imports came primarily in big-ticket capital goods. This category had risen sharply the previous month as U.S. companies looked abroad for the equipment needed to expand their own production facilities.

As usual, the country suffered its biggest deficit with Japan, a $4.4-billion imbalance, which was unchanged from June. The deficit with Western Europe rose to $2.3 billion from $1.9 billion in June.

The deficits with Taiwan and Canada were unchanged at $1.2 billion and $1.1 billion, respectively.