Deficit hits record high

0 Comments | Insight on the News, July 27, 1998 | by Patrice Hill

The $21.5 billion U.S. goods trade deficit is the highest ever, pushed to record levels by the Asian financial crisis, a strong dollar and low oil prices. Analyst say the worst is yet to come.

The U.S. trade deficit jumped 9.5 percent to a record $14.5 billion in April, reflecting a nose dive in exports to Asia and declining sales to much of the rest of the world.

Hardest hit were American farmers and aircraft manufacturers, according to the Commerce Department. Farm trade surplus dived 30 percent, while aircraft sales plummeted 36 percent. Exports overall declined 2.6 percent to $77.1 billion, while imports edged down 0.9 percent to $91.6 billion.

The United States' lopsided trade relationship with the world has worsened rapidly as the Asian financial crisis has reduced growth in U.S. exports there. American consumers have became the main economic engine struggling to pull Asia out of a deep recession through the purchase of Asian imports.

"If this is the Asian flu, it may be a killer variety," says Howard Lewis, vice president of the National Association of Manufacturers. Exports have plunged by 25 percent to Asian countries such as South Korea and Japan in the last year, he notes. But an 11 percent drop in imports from Asia is even more disturbing. The trend suggests that Asians can't find enough money to ship their products to the United States for sale.

Analysts say the worst trade-deficit news is yet to come, once the much-anticipated flood of cheap imports from Asia washes up on U.S. shores. "Clearly, it is in America's interest to keep the lights on in other economies, but an emergency generator will only work for so long," says Lewis, who believes that Japan, the world's second-largest economy, must take steps to revive growth and start importing goods from its neighbors.

While Asia remains the biggest sore spot for the United States -- the trade deficit includes a 14 percent surge for China -- a Commerce Department report shows the trade gap also ballooned because of a deterioration of sales to Europe, Russia, Canada and other countries. Analysts say that reflects both the strength of the dollar, which makes U.S. exports more expensive, and spreading weakness from Asia's recession.

Nations such as Russia, Mexico and Canada, whose economies rely heavily on exports of off and other major commodities, got hammered by the recession in Asia, which buys about one-third of the world's crude goods. These nations, in turn, are buying less from the United States. Exports to Organization of Petroleum Exporting Countries, or OPEC, for example, fell a whopping 24 percent from March to April.

"OPEC is getting slaughtered, and we've seen Russia take a sharp hit" because of the collapse of oil prices this year, says Andrew Szmamosszegi, senior research associate with the Economic Strategy Institute. "These countries were expecting to buy products from the U.S., and we were expecting to sell them products, but those plans may not materialize because of the Asian crisis."

In a further sign of the United States' worsening trade performance, the Commerce Department in a separate report says the deficit in the widest measure of trade, what's known as the current account, grew in the January-March quarter to a record $47.2 billion. This is up 4.8 percent from the previous high of $45 billion in the fourth quarter of last year.

April's $21.5 billion deficit in goods was the highest ever. The United States traditionally runs a deficit in goods trade that is partially offset by a surplus in services trade. But the services surplus fell 3.8 percent in April, according to Commerce.