Trade Gap Hits Worst Level in 6 Months

The U.S trade deficit widened to a gaping $10.26 billion in January, the government said Friday, raising doubts about the economy’s health and tough questions for the presidential candidates on sensitive issues of international trade.

With demand for foreign oil and automobiles sending imports to record heights, the trade deficit was the largest in six months and 47.6% greater than in December, when it was $6.96 billion.

For President Clinton, international trade has been a centerpiece of his domestic economic program since before the 1992 election. With a gap as wide as that reported by the Commerce Department on Friday, how does he use such numbers to argue--as he has for four years--that the trend toward lower trade barriers will produce jobs for American workers and increased business overseas for U.S. companies?

For Senate Majority Leader Bob Dole (R-Kan.), the presumptive Republican presidential nominee, the trade deficit provides an avenue to attack Clinton’s policies. Dole has recently sought to edge away from his long-standing support for a trade course similar to that followed by Clinton. But because Dole has favored liberal rules, is he better off keeping a low profile on this issue?

It is a question that has plagued the Dole campaign’s inner circle, said one person close to the campaign.

“It’s something the Dole camp is very much talking about--about how to walk the tightrope between unquestioned free trade and something else, without being trashed for seeming inconsistent with his entire record in office,” the source said.

And in the Clinton camp, said one well-placed source there, “the story the president doesn’t want is that we keep rolling over for our trading partners.”

Clinton administration officials Friday focused on other figures comparing the January performance with that of January 1995, and pointed out that the long-range trend shows growth in exports consistently outpacing growth in imports.

The increase in merchandise exports exceeded that of imports for the seventh consecutive month. From January 1995 to January 1996, the Commerce Department reported, merchandise exports grew 9%, while imports increased 6%.

“It is a major move for American trade in the right direction,” said U.S. Trade Representative Mickey Kantor, speaking with reporters by telephone from Los Angeles.

But measured from December 1995 to January 1996, exports of goods as well as services--a more-encompassing measure, but one reflecting a tendency for wide monthly variations--dropped 2.2%, to $66.6 billion, while imports were up 2.4%, to $76.9 billion.

The swing was fueled by big-ticket items that can shift dramatically from month to month. In this case, the value of civilian aircraft exports dropped $726 million, to $493 million, the lowest level since 1978. But this decrease reflected a strike at the Boeing Co.

And, Kantor pointed out, the price of imported oil went up, from $15.86 a barrel in December to $16.45 in January. This drove up the nation’s foreign oil bill 12.5%, to $5.15 billion in January.

Also affecting the overall picture, the trade deficit historically grows in January compared with December, when end-of-year sales abroad and preholiday buying cause the gap to narrow.

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In the end, said the Clinton advisor, “I don’t think anyone knows how it will play.” He said that polls indicate fairly consistently that Americans believe more-open trade rules help the U.S. economy.

“They get angry when they can tie trade to lost jobs, but at the end of the day they know it is a global economy and we have to play in it,” he said. “They don’t like trade, but they know it’s important.”

If the trade numbers are setting a confusing stage for the political campaign, they are also reflecting a mixed message about the economy.

Historically, soaring demand for foreign products suggests that the U.S. economy is far stronger than those of its trading partners, with U.S. companies and individual consumers buying more foreign-made products.

But that’s not necessarily so today, said Charles McMillion, a private economic consultant, who noted that the “trade deficit could be good if consumer demand was booming, but it’s not.”

In addition, private economists said that continued weakness in economies overseas, notably Japan and Germany, isn’t helping the trade picture either. “We are being hurt by weaker growth in Europe that is causing businesses there to cut back on their inventories,” said Bob Dederick, chief economic consultant at Northern Trust Co. in Chicago.

Clearly surprised by the magnitude of the deficit increase, some private economists said they were revising downward their forecasts for overall economic growth, as measured by the gross domestic product, or GDP. Bruce Steinberg, an economist at Merrill Lynch & Co. Inc., said he now believed the GDP for the first three months of 1996 will be less than 1%.

Associated Press contributed to this story.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Trade Troubles

Imports hit an all-time high in January, as the trade deficit reached its highest level in six months.

IMPORTS

UP 2.4% to record $76.9 billion, in part because of Americans buying more foreign cars and oil.

EXPORTS

DOWN 2.2% after a big drop in foreign sales of U.S.-built civilian aircraft.

Deficit’s Path

Overall trade deficit hit its worst point since July 1995.

In billions:

January 1996: -$10.26

Sources: Commerce Department, staff and wire reports