Trade Deficit Down in ‘88--1st Annual Decline Since Carter

The U.S. trade deficit shrank to $137.34 billion in 1988, the first annual decline since 1980, as a surge in exports offset a relentless climb in imports, the government reported today.

The Commerce Department said exports shot up to an all-time high of $322.22 billion last year, a dramatic 26.8% above the 1987 level, led by a boom in sales of U.S.-manufactured products and farm goods. The huge gain in exports was enough to offset an 8.3% increase in imports, which also rose to a record level of $459.56 billion.

For December, the trade deficit shrank slightly to $11.9 billion, down from a revised November figure of $12.2 billion.

However, both November and December represented the highest imbalances between what the United States imported and what it sold abroad since August.

Analysts are worried that the improvement in America’s trading performance has stalled out. After improving dramatically in the first half of 1988, the deficit actually began to widen again toward the end of the year.

Reversing that trend and getting further trade improvements is one of the major economic challenges facing the new Bush Administration.

Seeking Further Reduction

Reacting to the report, the Administration said it is committed to working for a further reduction in the trade deficit by boosting America’s competitiveness on world markets and shrinking the budget deficit.

White House Press Secretary Marlin Fitzwater called the decline “good news. It does show steady improvement, a trend of improvement.” He said the trade deficit has dropped 22% on a year-to-year basis.

Many analysts say the budget deficit has played a major role in the worsening trade performance of the 1980s by making America more dependent on foreign investment.

Commerce Secretary Robert A. Mosbacher said congressional approval of the Bush budget, along with a cut in the capital gains tax, would help to further reduce the trade deficit.

“Reducing the cost of capital, increasing personal saving and promoting research and development will go a long way to ensure that America wins at home and in the global marketplace,” Mosbacher said in a statement.

Down 19.4% From Peak

The $137.3-billion deficit for all of 1988 was down 19.4% from the all-time high of $170.3 billion set in 1987. It was the first year that the trade deficit has shown any improvement since it fell 12.5% to $31.4 billion in 1980, the last year of the Carter Administration.

During the Reagan years, the deficit soared above the $100-billion mark as Americans’ appetite for foreign goods proved insatiable. In 1985, then-Treasury Secretary James A. Baker III engineered a coordinated effort with major U.S. allies to devalue the dollar on foreign currency markets in an effort to make American goods more competitive and imports more expensive.

The strategy has proven successful in boosting exports but has had much less impact in curbing imports.

Some economists believe that the dollar will have to fall further to see more improvements in trade. Other analysts, however, worry that steeper declines could scare off the foreign investors the United States has come to depend on to finance its borrowing needs and could run the risk of igniting a new inflationary spiral.