Trade Deficit in August Widens to $12 Billion : After Hitting 3-Year Low in July, Gap Increases as Imports Rise Sharply, Commerce Dept. Says

Times Staff Writer

The nation’s merchandise trade deficit rebounded to $12.2 billion in August from a three-year low of $9.5 billion in July as a massive surge in imports overmatched another solid gain in exports, the Commerce Department said Thursday.

A renewed upsurge in the stubborn trade deficit had been expected after July’s huge drop of more than $4 billion, caused almost entirely by a steep decline in imports.

Even so, the August trade numbers were consistent with a steady, gradual decline in the trade deficit, which reached a record $170 billion last year. So far this year, the deficit has totaled $92.3 billion, compared to $113.4 billion in the first eight months of 1987.

Imports Remain Steady


Exports, which increased rapidly early this year, reached a record $27.5 billion in August. Imports, meanwhile, have remained about steady, although they surged in August to $39.7 billion, also a record.

“The trend in our foreign trade continues favorable,” Commerce Secretary C. William Verity said in a statement. He noted that exports so far this year have increased almost 29%, while imports have increased only 9.5%.

Democrats, by contrast, seized on the new report to bolster their argument that the Reagan Administration has allowed foreign competition to steal jobs and business from Americans.

“It makes our point,” said Sen. Lloyd Bentsen of Texas, the Democratic vice presidential candidate. “It’s just obvious this country does not have a trade policy. They have not made trade a priority for our country. They have just turned the other cheek.”


In the markets, traders who had expected the trade deficit to rise in August seemed to take the actual news in stride. The dollar firmed after two days of declines, and the Dow Jones industrial average gained 7.12 points after Wednesday’s steep 30.23-point drop. Interest rates rose slightly as bond prices slumped.

Analysts were equally unperturbed. “It came out along the lines of our expectations, and it suggests two main things,” said Bruce Steinberg, a senior economist at Merrill Lynch in New York.

“First, the process of adjusting the trade deficit downward is slowing,” Steinberg said. “Second, the U.S. economy is still strong, and we’ll keep seeing steady gains on the export side, with trade continuing as the main motor of industrial production. But we’ll also see higher imports, because domestic consumption is still high.”

The big gains on the import side were split almost precisely between capital equipment--a harbinger of future increases in industrial production--and consumer goods. Both increased by $1.1 billion to their highest levels for the year.

Robert F. Wescott of Alphametrics, a Philadelphia forecasting firm, termed the report “a setback, but an expected setback.” He interpreted it as another signal of strong economic growth ahead.

“Domestic fires continue to glow brightly,” he said. “We are seeing strong domestic demand and steady investment in capital goods.”

Steve Cooney, director of international finance and investment for the National Assn. of Manufacturers, saw the strong growth in imports of capital equipment as a positive sign for the future, whatever its impact on the August trade deficit.

“Imports grew for two reasons,” he said. “The first is rapid growth in capital goods, especially computers and electrical machinery. This is due to U.S. manufacturing investing heavily in its export base.”


The other reason, he conceded, was the big jump in imports of consumer goods, but he termed that to be expected during a period of economic growth. He noted that while August imports of cars and automotive parts were up $700 million over July, total auto imports from Japan and Europe are running almost $4 billion below 1987 levels.

Cooney also pointed out that before seasonal adjustment, the trade deficit grew in August by just $800 million.

The Commerce Department’s basic trade figures inflate the value of imports by including the cost of insurance, freight and handling, but they omit such costs in measuring exports. The department is now also reporting the trade deficit excluding the ancillary costs of imports.