Japan, China Imports Spearhead Huge Imbalance : Trade: Gap increased 43% for the United States during 1994. “The big news is that the bad news isn’t worse,” one expert says.
The nation’s trade deficit in goods and services soared 43% last year to $108.1 billion, the Commerce Department reported Friday, reflecting growing trade gaps with Japan and China and a recovering U.S. economy’s ravenous appetite for imports.
For trade in goods alone, the United States toted up a record-setting deficit of $166.3 billion, despite some improvement in December, officials said.
The goods figure, known as the merchandise trade deficit, shot up from $132.6 billion in 1993, and is a frustration for a White House that has promoted free trade as a key to prosperity.
U.S. trade gaps with Japan and China both hit all-time highs last year, together accounting for more than half the red ink. The Japanese imbalance in merchandise trade climbed 11% to $65.7 billion, while the red ink with China surged 30% to $29.5 billion.
Nevertheless, some economists predicted that the trade balance will improve in the coming months, as the U.S. expansion cools down and recoveries continue overseas.
“The year as a whole was a serious disappointment,” said Stephen S. Roach, senior economist at the Morgan Stanley investment firm in New York. “But the (trade) number was not nearly the disaster that many people are making it out to be.”
In December, for example, the monthly trade deficit narrowed to $7.34 billion, with U.S. exports to many parts of the world rising and imports to this country declining. That was the smallest monthly trade gap since last March and a pleasant surprise to analysts who anticipated a figure in the $10-billion range.
U.S. trade in services remains strong, meanwhile, with the longtime surplus broadening by 4.2% in December; for the year, the services surplus was $58.2 billion, up slightly from 1993.
Robert A. Brusca, chief economist with Nikko Securities in New York, called the December trade figures a “silver lining” that hints of further trade progress in 1995. “The big news is that the bad news isn’t worse,” he said.
Yet even those who expect the trade deficit to narrow this year pointed to major uncertainties that could make progress far more difficult.
Prominent on the list of wild cards for U.S. trade: Mexico’s financial crisis, the outcome of trade talks with China and Japan’s ability to handle imports and exports in light of earthquake damage to the key deep-water port of Kobe.
The United States, for example, registered a modest, $19-million trade surplus in merchandise with Mexico in December, a reversal from November’s deficit of $378 million. But sales south of the border are now being hit by the weak peso, which makes U.S. products more expensive.
Referring to the global picture, U.S. Trade Rep. Mickey Kantor told reporters Friday that the statistics for December “may signal” the beginning of a trend toward narrower deficits.
But he cautioned that trade barriers pose an ongoing problem, describing China and Japan as the “two most closed markets in the world.”
Last year, America’s brisk national recovery fueled a binge of import buying--up 13.5%--which overshadowed a record performance in export sales, up 10.1%. Americans last year shelled out rising amounts for foreign autos, computers, semiconductors, clothing and consumer electronics, the government said Friday.
But now, the situation may be reversing, as overseas recoveries gather steam and the U.S. upturn appears to be slowing down.
In December, imports of merchandise actually fell by 1.1% while exports of goods rose 4.1%. Declining deficits were recorded with Western Europe and Japan, a development that heartened economists.
“A slowdown in domestic demand should slow import growth sharply in 1995,” economists at Merrill Lynch said in an analysis Friday. “December may be the first installment in that process.”
Though financial markets took the numbers in stride Friday, news of a growing trade deficit often rattles investors.
Economists, disagree on the significance of a trade gap, particularly if it is temporary. Imports “allow us to have a larger amount and larger variety of goods to consume,” said Richard D. Rippe, chief economist at Prudential Securities.
But when an advanced, industrial nation such as the United States runs a chronic imbalance, it may be spending too much on merchandise “and not saving enough to meet its long-term needs.’
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U.S. Trade Deficit
Overall deficit, in billions of dollars:
Dec. 1994: -7.34
Source: Commerce Department
