Trade Deficit Dives to 7-Year Low in June
The United States posted a stunning improvement in its foreign trade picture in June, the government reported Friday, but analysts said the progress may be dampened later this year by the oil price hikes that followed the Iraqi invasion of Kuwait.
The Commerce Department’s monthly report showed that imports exceeded exports by $5.1 billion last month, down from a $7.8-billion imbalance in May. It was the lowest monthly trade deficit since December, 1983.
The improvement occurred because Americans bought fewer imports and exported more goods, reflecting precisely the sort of results that top U.S. economic policy-makers have been trying to achieve for years.
U.S. economic officials have been attempting to keep the dollar’s value low in order to spur exports, and the economy’s growth has been minimal, which helped reduce demand for imports.
With domestic demand weakening steadily in recent months, top Administration economists have been counting on a continuing surge in exports to help maintain momentum in the economy. Some analysts, however, fear the nation may be entering a recession.
The Bush Administration hailed the June figures with virtually no mention of the likely negative impact that the subsequent oil price increases will have on the nation’s trade deficit.
Commerce Secretary Robert A. Mosbacher said in a statement that the performance in June was “the best . . . in seven years.” He noted that the trade deficit had showed “a major improvement” during the first six months of the year.
At the same time, Mosbacher said that, because of the Middle East situation, the department would begin publishing separate analyses of trade flows in oil and non-petroleum goods later this year to help gauge underlying trends. “This will provide a better indication of . . . our international competitiveness,” he said.
The annual trade deficit has been declining markedly in recent months after having peaked in 1987 at $152.1 billion. The red-ink figure for 1988 fell to $118.5 billion and slid to $109.4 billion last year.
For the first six months of 1990, the trade deficit had been running at an annual rate of $91.6 billion.
Friday’s report marked the first time this year that the deficit has dropped below $7 billion. Import purchases declined 3% over the month to $39.4 billion, and exports rose 5% to $34.3 billion--partly because of a $500-million increase in aircraft sales.
Ironically, imports of petroleum products also declined sharply. Oil imports in June fell 15% to $3.7 billion. Americans imported 8.4 million barrels a day, down from 8.95 billion in May. The average price per barrel fell to $14.64, down from $15.57.
But analysts said the oil price increases brought on by Iraq’s invasion of Kuwait earlier this month are likely to impede further progress and may well spoil chances for the United States to bring its trade deficit below $100 billion this year.
The Iraqi invasion of Kuwait has sent oil prices soaring to about $28 a barrel, up from $18 before the crisis began. Analysts say the rise is likely to add about $15 billion a year to the nation’s oil-import bill.
Even so, economists pointed out that, because the oil price hike applies to U.S. competitors as well as to the United States, the price rise isn’t likely to make America significantly less competitive.
“The increasing costs from oil prices will affect the Japanese and West Germans as much as it does us,” said Edward M. Bernstein, a Brookings Institution economist. “After the situation stabilizes, I think we’ll be able to reduce our deficit.”
Francis Bator, professor of political science at the Kennedy School of Government at Harvard University, agreed. He said the U.S. position worldwide would also depend on whether the dollar rose or fell. “No one can say right now which way it will go,” he said.
As usual, the biggest deficit was with Japan, a $3.1-billion imbalance, up from a $3-billion deficit in May.
The United States posted a surplus with Western Europe of $899 million.
Other deficits included Taiwan, $900 million; China, $800 million; Canada, $700 million; Brazil, $300 million; Korea, $200 million, and Hong Kong, $100 million.
Staff writer James Risen contributed to this story.
