The Narrowing Gap : Trade Gains in Europe Offset Record Imports From Far East

The nation’s trade deficit dropped nearly 13% in August to $9.74 billion, as a shrinking trade imbalance with Western Europe offset record imports from Japan and China, the Commerce Department reported Wednesday.

Increases in the export of aircraft, autos, tobacco, semiconductors and industrial machinery pushed U.S. exports to a record high. The total August deficit in goods and services was an improvement over the revised $11.19-billion shortfall in July, the second-worst trade gap ever. The drop in the deficit was the first since a 1.6% decline in October, 1993.

The strength of American trade was notable in relation to Western Europe, whose nations are slowly pulling out of a punishing recession. U.S. exports there grew and imports fell. “We did a very good job in selling goods abroad,” said Larry Moran, a research economist at the Commerce Department’s Bureau of Economic Analysis.

But analysts pointed out that 1994 continues to be a bad trade year for the United States, which is importing far more than it exports, particularly now that the U.S. economy is growing strongly.

In the first eight months of the year, the trade deficit was running at an annual rate of $147.4 billion. The record is $152.1 billion, set in 1987.

In particular, the trade deficit with Japan, one of the United States’ major trading partners, soared to its third-highest level ever, mainly because Americans continue to import and buy large numbers of Japanese cars. The growth was also tied to the strength of the yen against the dollar.

“Our economies are in quite different stages of the business cycle,” said Robert Z. Lawrence, a professor of international trade at Harvard University’s Kennedy School of Government. “We are growing rapidly, and they are not. . . . That clouds the question of whether or not they are becoming more open.”

As for China, whose economy continues to blossom, it is sending a record volume of goods to a voracious U.S. market, including toys and apparel, while buying relatively little, analysts said.

For their part, investors who worried that the August trade figures indicate the nation’s economy is running too hot sent yields on the benchmark 30-year Treasury bond up to 7.89% from Tuesday’s 7.86%. But the Dow Jones industrial average closed up 18.50 points at 3,936.04.

The trade deficit with Japan rose in August to $5.8 billion from $5.7 billion in July and prompted a renewed call by U.S. auto makers for Japan to live up to its commitments to open its markets.

“Without a doubt, we are headed for a record deficit in automotive trade with Japan this year, despite the effects of the strong yen and improved competitiveness of the U.S. auto industry,” Andrew H. Card Jr., president of the American Automobile Manufacturing Assn., said in a statement Wednesday.

Imports of goods from Japan reached a record $10.67 billion, surpassing the $10.6 billion reached in March. Auto imports accounted for more than half the increase, said Haydn R. Mearkle, assistant chief of the foreign trade division of the Commerce Department’s Bureau of the Census.

The rise in imports more than offset an increase in U.S. exports of goods to Japan, which climbed to $4.87 billion from $4.37 billion. Much of the increase was in the form of aircraft exports.

It will be months, if then, before the trade figures reflect the effects of the recent agreement between Washington and Tokyo on opening Japanese markets in telecommunications and medical equipment, government procurement and other areas.

The situation was different in Western Europe, where the trade deficit shrank to $1.62 billion in August from $2.37 billion in July. Imports from Europe fell 3.1% to $10.7 billion; exports rose 4.6% to $9.1 billion. The Commerce Department provided no details of either.

But analysts attributed the performance to improved financial conditions on the Continent. “Europe is on the road to recovery, so exports are starting to pick up and may explain why there’s a better balance there,” said Cynthia Latta, senior financial economist at DRI/McGraw-Hill in Lexington, Mass.

The U.S. deficit with China rose a whopping 21.3% to $3.24 billion in August, one of the highest deficits with a nation other than Japan. Imports grew to $4.15 billion in August from $3.64 billion in July, reflecting a wide variety of goods, including toys and apparel.

A decrease in U.S. fertilizer shipments to China, meanwhile, offset an increase in aircraft exports and contributed to a drop in overall exports, to $919 million from $971 million in July.

U.S. Trade Picture Improves

Month-by-month changes in the government’s new trade report, which includes trade in services as well as goods. The charts track the overall deficit, the deficit in goods and the surplus in services, in billions of dollars:

OVERALL DEFICIT: -9.74

DEFICIT IN GOODS: -14.30

SURPLUS IN SERVICES: +4.56

Source: Commerce Department