U.S. Trade Gap Shrinks 8%; State Exports Plunge

The U.S. trade deficit narrowed by 8% in 2001, its first improvement in six years, as recession-wary consumers trimmed their purchases of imported goods, more than offsetting a drop in foreign demand for U.S. products, the Commerce Department said Thursday.

But the improvement in the trade gap didn’t translate into good news for the nation’s export sector, which is being pummeled by a strong dollar and weak overseas economies.

California exports plunged by 26% in the fourth quarter of 2001 compared with the same period in 2000, capping a brutal year for the state’s high-tech manufacturers, whose products account for nearly half of the state’s exported goods. Exports of computers and electronic products tumbled from a record $16.6 billion in the fourth quarter of 2000 to $11.2 billion in the final quarter of 2001--a drop of 33%.

Government figures showed that the U.S. trade gap for goods and services totaled $346.3 billion in 2001. That follows a record trade deficit in 2000, when the imbalance hit an all-time high of $375.7 billion.

Although the narrowing of the trade gap probably will result in a higher 2001 U.S. gross national product than previously projected, some economists cautioned against interpreting it as a sign of strength.

“If it had come about because of an increase in exports, that would be solid news,” said Rajeev Dhawan, director of Georgia State University’s Economic Forecasting Center. “This is a sign of weakness

Despite the overall decline in the goods and services deficit, America’s trade gap with NAFTA partners Mexico and Canada last year hit record levels of $30 billion and $53.3 billion, respectively.

In contrast, the trade deficit with Japan, mired in its third recession in a decade, shrank to $69 billion, the lowest level since 1998.

Meanwhile, China retained its crown as the country with the largest trade imbalance with the United States, a title it seized from Japan in 2000. America bought $83 billion more in goods and services from China last year than it was able to sell to the Asian giant.

California, the nation’s largest exporting state, saw its overall exports decline nearly 11% last year to $106.8 billion.

The major culprit was the state’s information technology sector, which has been walloped by the collapse in business investment. Exports of computers and electronic products totaled $50.3 billion in 2001, an 18% decline from 2000.

Although overall exports declined every quarter in 2001, analysts said the steep fourth-quarter drop reflects lingering fallout from the Sept. 11 terrorist attacks and record inventory liquidation in the final quarter of the year.

“It’s just another reflection of the high-tech slump,” said Ted Gibson, an economic consultant and former chief economist with the California Department of Finance. “I don’t think the first quarter [of 2002] is going to be much better.”

He and others say California exporters, like those in the rest of the country, are facing a double whammy of a weak global economy and a strong dollar.

That’s bad news for California’s manufacturing sector, the nation’s largest, which is highly dependent on foreign sales. The National Assn. of Manufacturers estimates that nearly 25% of the more than 1.5 million U.S. manufacturing jobs lost in the last year and half can be attributed to the steep decline in U.S. exports.

NAM attributed much of the decline to the sharp rise in the value of the dollar, which makes U.S. goods more expensive and, thus, less competitive.

For the month of December, California’s exports totaled $7.9 billion. That was down just slightly from November’s $8 billion. But it represented a 29% plunge from December 2000.

Sacramento trade analyst Jock O’Connell had been expecting a better December performance, making him leery about the prospects of a rebound any time soon.

“I’m not sure we’ll see a substantial recovery much before the summer,” he said. “I’m hoping we’ve seen the bottom.”

Carl Guardino, president of the Silicon Valley Manufacturing Group, said members of his organization, which include some of the biggest high-tech manufacturers in the Bay Area, are expressing “cautious optimism” about the second half of 2002.

Meanwhile, some smaller high-tech players are downright bullish about their overseas prospects.

Ramdev Regulapati, chief executive of Milpitas, Calif.-based Mobile Web Surf, expects sales of his fledgling firm to grow fifteenfold this year, with nearly three-quarters of that coming from customers in Asia and Europe.

Regulapati, whose company makes data exchange servers for mobile devices, said the unfolding “wireless revolution” represents a substantial opportunity for his firm and others in California.

“It’s the next big thing,” Regulapati said. “We don’t see any problem in expanding our revenue and getting customers outside the U.S.”

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Times wire services were used in compiling this report.