U.S. Trade Deficit Drops

WASHINGTON — The U.S. trade deficit took a surprising tumble in October even though the gap with Japan was the greatest in 2 1/2 years, the government said Thursday.

But economists said the steeper-than-expected 13.7% October decline in the trade gap to $9.69 billion was only a short respite from what many predict will be a rising deficit next year, as the Asian economic crisis takes its toll on U.S. exports to the region and cheaper Asian goods begin to flow into U.S. markets.

Commerce Department economist Lee Price said it may be several months before the full effects of Asian currency devaluations and economic slowdowns will be reflected in the monthly trade report.

“You wouldn’t see the full effects for many months,” Price told a news conference following release of the monthly trade report. He said he saw a high probability that the U.S. trade deficit will rise next year.

The National Assn. of Manufacturers (NAM) said a survey of its members shows many expect a significant slowdown in exports to Asia next year as imports from the region rise.

“As Asian currencies continue to decline against the dollar, higher exchange rate differentials will certainly lead to higher trade deficits as our exports become less competitive and Asian imports into the U.S. rise,” said NAM President Jerry Jasinowski.

The October decline in the deficit on goods and services trade was steeper than the more modest fall expected by Wall Street analysts.

They were looking for a $10.8-billion trade gap for the month, compared with a $11.23-billion deficit in September.

The Commerce Department said both exports and imports of goods and services were at record levels in October. The deficit in goods trade fell by 7.9% to $17.08 billion in October, while the surplus in services rose by 1.1% to $7.39 billion, the department said. The United States usually runs a surplus in services trade, which helps offset the deficit in merchandise trade.

The U.S. trade gap with Japan rose by more than 14% in October to $5.87 billion, from $5.13 billion in September. The department said it was the highest monthly shortfall with Japan since April 1995, when the deficit was $5.89 billion.

The department said imports of $11.2 billion from Japan were the highest since March 1995.

The trade gap with Japan during the first 10 months of the year was $46.37 billion, compared with $39.07 billion during the same period in 1996.

While the gap with Japan widened, the deficit with China narrowed by 5.9% to $5.19 billion from $5.52 billion in September. The department said October U.S. exports to China were a record.

The trade deficit with the newly industrialized countries in Asia, including Hong Kong, South Korea, Singapore and Taiwan, fell a sharp 27.6% in October, the department said. Many economists have said they expect the financial crisis gripping Asia to increase the U.S. trade deficit with those countries. But others say they do not expect the impact to be as severe as some have predicted.