July Trade Deficit Up 43% at $11.7 Billion
The U.S. trade deficit ballooned 43% to $11.7 billion in July, fueled by a drop in exports of U.S. airplanes and a larger-than-expected surge in imports of Japanese autos and parts, Chinese toys and clothing and crude oil.
Analysts were surprised by the size of the July deficit, the highest for any month since 1992. But they said the underlying reasons for it are not alarming: a seasonal slowdown in domestic manufacturing, a strengthened dollar, which boosts prices of U.S. goods and cheapens those from other nations, and continued sluggishness in key markets in Europe and Japan.
And a monthly dip in aerospace exports is not seen as a cause for concern, given the health of the U.S. aerospace industry in recent months, fueled by booming foreign travel markets.
U.S. Commerce Secretary Mickey Kantor said Wednesday that the overall U.S. trade picture remains a healthy one, with the overall trade deficit falling to $63.9 billion in the first seven months of this year, a 10% decrease over the same period last year.
Still, the July deficit--the largest imbalance since the U.S. government began making its annual report of trade and services in 1992--jolted the currency markets. The dollar closed the day at 109.15 yen, down from 110.24 on Tuesday.
. The unexpected increase in Japanese auto and auto parts imports was attributed to the introduction of new model lines. This helped Japan nudge aside China as the country with the biggest trade surplus with the U.S. In June, China supplanted Japan in that role for the first time and is expected to regain that position for the longer term.
Meanwhile, higher world oil prices drove the value of imported crude up 10% to $4.7 billion, the highest monthly total since October 1990.
“The shocking numbers, as so often is the case, were largely due to oil and aircraft,” said Robert Dederick, economic consultant to Northern Trust Co. in Chicago. “But it also left the underlying message that we are heavily dependent on imports and heavily dependent on the strength of foreign markets.”
Richard Berner, chief economist for Mellon Bank in Pittsburgh, said the deficit could be an indicator of weaker growth in the third quarter if key U.S. foreign markets are unable to jump-start their economies. But he warned that July is traditionally a slow month for U.S. exports as major manufacturers cut back production during the vacation season. Last year, the overall U.S. trade deficit ballooned to $11.5 billion in July and dropped back to $8.36 billion the next month.
Berner and others predicted that the trade deficit picture will improve again this fall as the Japanese domestic economy picks up steam, bolstering the country’s newfound appetite for foreign goods, and as Japanese manufacturers shift more production overseas.
But Larry Chimerine, chief economist for the Washington-based Economic Strategy Institute, said the overall trade numbers are symptomatic of a structural imbalance in U.S. trade caused largely by closed markets in other parts of the world. He was particularly critical of barriers to U.S. sales in China, where the trade deficit for July expanded by 17% to $3.82 billion. Toys, clothing and footwear headed the list of China’s exports to the U.S.
Michael Penzer, a senior economist with Bank of America in San Francisco, said U.S. exporters also were feeling the effects of the recently strengthened dollar, which has made U.S. products more expensive in other countries.
U.S. auto makers echoed the same concern this week, complaining that the current exchange rate of nearly 110 yen to the dollar has been hurting sales of U.S. autos in Japan. U.S. and Japanese officials are meeting in San Francisco this week to evaluate progress on last year’s U.S.-Japan auto agreement, which was intended to improve U.S. access to Japan’s lucrative auto market.
Economics aside, the poor July trade showing is certain to be used by U.S. presidential challengers Bob Dole and Ross Perot as evidence against President Clinton and his economic record.
But given the overall strength of the U.S. economy, particularly the low jobless rate, analysts don’t expect the trade deficit to cause much excitement on the campaign trail.
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Trade Gap Widens
The U.S. trade deficit reached its highest level since 1992. Month-by- month changes in the trade deficit, in billions:
1996: -$11.68
Source: Commerce Department
