THE ECONOMY : ’95 U.S. Trade Deficit Worst in 7 Years

The U.S. trade deficit ballooned to $111.04 billion in 1995, the worst performance in seven years, the Commerce Department reported Wednesday, underscoring job anxieties that are resounding from the factory floor to the presidential campaign trail.

Despite a marked overall improvement late in the year--highlighted by long-awaited trade gains with Japan and a general pattern of export growth--the U.S. trade balance deteriorated with China, Mexico and other nations. The trade gap for goods alone hit an all-time high.

Administration critics immediately accused the White House of pushing trade accords, such as the North American Free Trade Agreement, that have cost thousands of jobs. And analysts debated whether the deficit will shrink much this year, given economic problems affecting key U.S. customers in Western Europe, Japan and Mexico.

The trade gap may have bottomed out, said Jeffrey J. Schott, a research fellow at the Institute for International Economics in Washington, “but I wouldn’t be very bullish about dramatic change for U.S. trade prospects in 1996.”

The new government report contains a lengthy mishmash of figures and bristles with tables that ould provide evidence for various views on the nation’s competitiveness. A few clear realities seem to leap out, however:

* The whopping annual deficit obscured an underlying trend of improvement that became obvious about August.

* Substantial gains in U.S. exports reflect favorably on U.S. competitiveness, economists agree, but they were not sufficient to offset the nation’s vast appetite for imports and the unusually large trade gap.

* The United States last year bought far more goods from its North American neighbors than it sold to them, although the effect NAFTA has had on U.S. jobs remains a source of argument.

“Exports are rising but manufacturing jobs aren’t,” said Thea Lee, an economist and trade specialist at the Economic Policy Institute, a liberal think tank in Washington. “You have to say that some jobs are being displaced by imports.”

Progress in narrowing the trade gap seemed to stall in December, as the deficit widened slightly from November, to $6.78 billion. The 1995 deficit, which was 4.5% larger than the previous year’s, would have been substantially worse if not for a trade surplus in services, such as tourism, transportation, royalties and license fees.

Administration officials said Wednesday that export gains of 14.4% for the year provided a much-needed boost to economic growth and will help narrow the trade gap in 1996. The December monthly deficit reflected a pronounced trend downward from earlier in the year, when the monthly deficit figures were exceeding $11 billion.

“We are very pleased with the results of our pro-growth, pro-export strategy,” Laura D’Andrea Tyson, head of the president’s National Economic Council, said at a briefing for reporters.

Economists long have worried that a large trade imbalance--the difference between how much America sells to foreign countries and how much it buys from them--creates downward pressure on the dollar, potentially roiling financial markets and even pushing up interest rates.

But the financial issue has been overtaken by the issue of job security in an era of corporate downsizing and overseas competition.

Administration officials, along with many private economists, maintain that jobs gained through U.S. exports greatly exceed the number lost. For example, the Office of the U.S. Trade Representative said Wednesday that export growth created more than half a million new jobs last year, pushing up the total of export-related jobs to 11 million.

“We have welcomed foreign products and services into our markets, but we’re insisting that other countries allow our products and services into their markets on equal terms,” declared U.S. Trade Rep. Mickey Kantor.

But others, who believe that trade agreements have not adequately protected American workers from losing their jobs, see at least some vindication in the new trade gap data. Clearly, a churning global economy has led to some disruptions as new jobs are created and old ones are transferred elsewhere.

“Half a million jobs created last year--where are they?” asked Lee of the Economic Policy Institute.

Overall, she maintained, the total of U.S. jobs either lost or not created because of competition from imports could be almost 2.5 million.

An unarguable plus within Wednesday’s trade report was evidence that the U.S. trade deficit with Japan shrunk for the first time in four years, narrowing by 9.7% to $59.28 billion. The pattern remained apparent in December, with the monthly deficit sinking to $3.47 billion from $4.13 billion the month before.

“Our trade policy with Japan is working,” Kantor’s office said in a statement.

Mexico and China, by contrast, were minuses in the trade picture. The U.S. trade surplus with Mexico in 1994 turned into a 1995 deficit of $15.4 billion, reflecting Mexico’s severe downturn.

At the same time, the U.S. trade gap with China widened dramatically--up 14.6% to $33.81 billion--although it narrowed somewhat in December, reflecting a general slowdown in U.S. consumer purchases, analysts said.

U.S. officials said the trade picture with China is not what it appears to be because of disputes over the piracy of U.S. movies and computer programs. The United States has raised the possibility of imposing sanctions on Chinese goods unless the situation is resolved.

The trade gap also widened with Canada, to $18.2 billion, the biggest since 1986.

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U.S. Trade Deficit

In billions of dollars:

Dec. 1995: -$6.78

Source: Commerce Department