Trade Deficit for 1989 Smallest in Five Years

The deficit in the broadest measure of U.S. trade declined to $105.89 billion last year, the smallest in five years, aided by higher merchandise exports and increased foreign travel, the government said today.

The Commerce Department said that the current account deficit shrank 16.3% from a $126.55-billion imbalance in 1988.

However, even with the improvement, the current account deficit remained above $100 billion for the sixth consecutive year. The 1989 total was the lowest since a $104.19-billion deficit in 1984.

The year ended on a positive note as the October-December deficit declined to $20.57 billion, down 10.2% from the third quarter, and the smallest quarterly imbalance in almost six years.

The current account, also known as the balance of payments, is the most important trade statistic because it measures not only the flow of merchandise across borders but also the trade in services and investments.

The United States ended the 1980s in a far different position than it began the decade. In 1980, there was a small surplus in the nation’s current account. America was the world’s largest creditor country, and its earnings on overseas investments were enough to offset perennial deficits in merchandise trade.

However, as Americans transferred billions of dollars into foreign hands to pay for merchandise imports, the investment cushion shrank rapidly and disappeared altogether in 1985, when the United States became a net debtor for the first time in 71 years.

America’s debtor position stood at $532.5 billion at the end of 1988, and today’s report indicates that it grew to about $630 billion last year. The exact accounting of this figure will not be released until later in the year.

The growing foreign ownership in America has triggered a heated debate over whether America is losing control of its economic destiny to foreigners.

Some economists predict that the current account deficit could actually begin rising again this year, reflecting a higher dependence on foreign oil and more sluggish sales of U.S. exports.

That development would spell bad news for the Bush Administration, which is counting on further improvements in trade to bolster America’s flagging industrial sector and add to domestic economic growth this year.