2nd-Quarter Trade Figures Show Record U.S. Deficit : Economy: Results prompt fear that domestic employment could suffer.
American trade with the rest of the world posted a dismal performance for the second quarter of this year, according to government figures released Tuesday, setting the nation on a course toward the largest annual trade deficit in history.
The Commerce Department said the trade deficit for the months of April, May and June leaped to $43.62 billion, nearly $400 million greater than the previous record, set at the end of 1994.
The measurement is the broadest gauge of the nation’s trade with the rest of the world. It takes into account trade in merchandise and services and tracks the flow of investment funds. Economists consider the quarterly figures more telling than the volatile monthly reports because they reflect trends over a longer period of time.
“We’re heading for another big yearlong record,” said Greg Mastel, a trade expert at the Economic Strategy Institute in Washington. “The real question is: Do we break $200 billion?”
Aside from the eye-popping figures and the psychological impact on the economy of U.S. trade’s being so far out of balance with the rest of the world, there is a larger issue at stake: The more dollars that flow out of the country for foreign products, the fewer that are available at home to fuel economic growth--and production of jobs.
In addition, the news could provide ammunition for critics of President Clinton’s international economic policies, which are intended to open markets more for U.S. goods by reducing trade barriers.
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The deficit reached an annual total of $151.25 billion for 1994, and during the first half of 1995, it was running at an annual level of $165.24 billion. But imports often surge at the end of the year, particularly in recent years, as China has been flooding the nation with goods for holiday shopping.
“These numbers are one step removed from the average person’s life,” Mastel said. “But what is interesting is that in another year or two, the built-in deficit from Japan and China will reach $120 billion to $130 billion. It shows no sign of going away. That’s a heavy weight on the dollar.”
The reason is this: If a Long Beach importer of, say, Hondas, buys a shipload of the automobiles, the Japanese manufacturer is paid by the American company in Japanese yen. The Americans must purchase yen, as though they were a commodity, and the more yen required, the more valuable the foreign currency becomes--at the expense of the value of the U.S. dollar.
For months, U.S. officials have been pointing to the strength of the U.S. economy, as compared with the economies of two of the United States’ largest trading partners--Japan and Mexico--as the reason for the trade deficit. Japan, they have argued, is still mired in economic stagnation, and Mexico is trying to recover from the crisis last winter that saw the peso plummet in relation to the dollar. Thus, officials have said, neither is able to boost its purchases of U.S. goods.
In the view of some economists, the trade numbers also raise questions about efforts by the Group of Seven, the leading industrial democracies, to coordinate their currency policies to protect the value of the dollar.
The seven nations--the United States, Britain, France, Germany, Italy, Canada and Japan--agreed to coordinate their policies in April with prodding from the Clinton Administration.
C. Fred Bergsten, president of the Institute for International Economics, has taken issue with this policy.
“One thing we learn [from the trade deficit figures] is it doesn’t make much sense to be pushing the dollar up in the exchange markets,” he said.
This is because the stronger dollar makes U.S. goods more expensive in foreign markets, limiting U.S. exports and lowering the price of foreign-made goods purchased in this country. At the end of trading Tuesday in New York, the dollar was being quoted at 101.10 yen, a 25% increase from its lowest point in the spring but the same level at which it opened the year.
The Commerce Department, in breaking down the overall figures, reported that the merchandise deficit reached $49.04 billion; the investment income deficit was $2.87 billion, and there was a $7.38-billion deficit in a category called unilateral transfers, which includes foreign aid.
On the other side of the ledger, the department reported a surplus of $15.67 billion in services, $62 million more than for the previous quarter.
Exports grew by $4.5 billion, but overall demand for imports was greater, growing $8.5 billion, in large part because of the purchase of foreign oil, automobiles, computers and other consumer goods.
