U.S. Trade Gap Shrinks in Aug. by $800 Million
The U.S. trade deficit narrowed in August, the government reported Wednesday, as economic comebacks in Asia and elsewhere provided a substantial kick to American exports and started to take some pressure off the United States as the world’s only engine of economic growth.
Striking evidence of export gains, coupled with expectations that the U.S. economy may be cooling somewhat, suggested to some analysts that the trade gap may finally have reached a peak after two years of explosive growth.
At the same time, the Commerce Department report showed that many countries continued to shower products on the lucrative American marketplace, and the United States maintained huge trade deficits with China, Japan, Western Europe, Canada and Mexico. The deficit with China was the largest ever recorded between the U.S. and another country.
The overall trade gap, which has been climbing relentlessly, slid to $24.1 billion in August from $24.9 billion the month before. It remains on course to exceed $250 billion this year--a magnitude that still raises questions about the future health of the U.S. economy.
In particular, it could push the value of the dollar down as purchases by Americans of foreign goods create a vast supply of greenbacks throughout the world. The United States in turn might be forced to drive up interest rates at home to protect the dollar.
“The deterioration may have ended, but it’s still a very, very large trade deficit,” noted Michael Hartnett, an international economist with the Merrill Lynch investment firm in New York. “I think the old questions about how it’s financed are still unanswered.”
Other analysts pointed out that America’s ravenous appetite for imported products suggested the trade deficit would remain conspicuously large even as strengthening overseas economies provide a long-sought boost to U.S. sales abroad. Those export gains, in turn, work against any slowing of U.S. economic growth.
“The global economy is coming back--and our export business is coming back big-time,” declared Stephen S. Roach, chief economist at the Morgan Stanley Dean Witter investment firm. “But, unfortunately for us, our export gains are continuing to be offset by massive imports. . . . We are not out of the woods yet.”
More than most economic indicators, the trade deficit hits an emotional chord with its suggestion that Americans are losing jobs to rival workers overseas, and it stirs political debate on whether the U.S. is treated fairly by its trading partners. With the economy generally robust, the trade gap looms as the biggest economic embarrassment for the White House, even though some analysts believe that, more than anything else, it reflects the vigor of the American consumer.
The deficit with China, a record $6.9 billion in August, is particularly sensitive. It comes as administration efforts to bring China into the global trading system appear stalled.
U.S. officials warned Wednesday that China’s prospects for completing a deal with Washington to join the World Trade Organization depend on its willingness to improve access to its markets for U.S. companies and products.
“Despite rising exports, U.S.-China trade remains a troubling story,” Commerce Secretary William M. Daley said.
Chinese President Jiang Zemin, traveling in London, said China’s entry into the WTO is in both China’s interest and the world’s. But he added, “We are firm on not sacrificing our national interests in undertaking any international economic cooperation.”
The U.S. trade deficit of $167 billion through August has already surpassed the gap of $164.3 billion for all of 1998. At the same time, it remains a smaller share of the overall U.S. economy than in 1987, when it also was at the center of a heated political debate.
In August, the United States sold $82 billion in products to the rest of the world, with gains for civilian aircraft, industrial supplies and automobiles. Imports rose to $106.1 billion as Americans spent more on foreign autos, an assortment of consumer goods and oil.
Economists were especially pleased that exports to the Pacific Basin continued to rise, jumping 6.4% in August, with noteworthy gains for shipments to South Korea and Singapore. The steady increase in U.S. business in Asia this year bodes especially well for California--where economic fortunes are linked far more to Asia than is the case in most of the country.
Signs of increased California shipments to South Korea, Taiwan and Singapore have been previously noted, and Wednesday’s report suggested that the appetite in Asia for American products continues to grow.
