WASHINGTON — Bolstered by a sharp increase in exports, the U.S. trade deficit shrank in October for the third month in a row, the Commerce Department reported Wednesday, offering strong evidence that the nation's trade imbalance has begun to improve.
The deficit dropped $500 million to $12.1 billion, the best performance in 14 months. Economists said it reflects the steady decline in the value of the dollar, which has made imports more expensive at home and U.S. products more competitive abroad.
If the reversal in the nation's soaring trade deficit continues, it would provide a boost to an economy that has been sluggish for more than two years.
"A radical improvement in trade is now under way," said David Levine, chief economist at the New York investment firm of Sanford C. Bernstein & Co. "There's no way that can happen without having the benefits flow to American industry."
Meanwhile, Sen. Lloyd Bentsen (D-Tex.), who will take over as Senate Finance Committee chairman in January, promised a tough trade bill next year even if President Reagan threatens a veto. But he appeared to be disavowing certain protectionist provisions included in sweeping trade legislation that was approved by the House last year but never acted on in the Senate.
Bentsen, at his first Washington press conference since the congressional elections earlier this month, said his goal would be to "fend off" proposals that are "tinged with protectionism." However, he acknowledged that he expects "some differences in views" between the Senate and the House.
He sidestepped a question on whether he still supports a House-approved provision to impose stiff tariffs on any country that runs a large trade surplus with the United States, but he emphasized that he favors retaliation against nations that subsidize their exports and "dump" goods on the U.S. market at prices below the cost of manufacturing them.
But Bentsen camouflaged his cautious position in harsh-sounding rhetoric: "I did not become chairman of the Finance Committee," he said, "to participate in the dismemberment of industry in this country."
He called for a bipartisan approach to trade legislation, and President Reagan's chief trade negotiator has hinted that the Administration may be willing to bargain with Congress in an attempt to put together an acceptable bill.
Clayton K. Yeutter, Reagan's special trade representative, told a seminar sponsored by the Institute for International Economics this week that the Reagan Administration is "still working on its legislative strategy" and suggested that "our views may not be what you perceive." In the past, Yeutter has said that the Administration, which has opposed trade restrictions on the ground that they invite retaliation by other countries, would defend itself against trade legislation primarily through a strategy of "veto, veto, veto."
Despite the recent improvement, the overall gap between imports and exports this year is expected to exceed last year's record of $148.5 billion by as much as $15 billion to $20 billion.
And, as long as the trade deficit remains above $100 billion, I. M. Destler of the Institute for International Economics argues, lawmakers are more likely to explore import quotas and tariffs to protect ailing U.S. industries than to support the Administration, which is seeking voluntary agreements in its current international trade negotiations.
Last month's trade deficit was the lowest since a $12.1-billion deficit in August, 1985, and represented a modest improvement from September's trade gap of $12.6 billion. Exports increased by $1.8 billion to $19.3 billion and imports rose $1.3 billion to $31.4 billion.
The figures suggest that the United States has "turned the corner on trade, said David Wyss, an economist at Data Resources Inc. in Lexington, Mass. "For the last two years, a lot of good growth in demand has been eaten up by foreign producers. Now we are holding our own and starting to make some progress."
The White House, encouraged by the turnaround, said in a statement that the decline in the dollar's value "is beginning to take effect in countering our recent trade difficulties."
The trade deficit with Japan continued to be the largest single imbalance, with imports outpacing exports by $5 billion in October, up from $4.1 billion in September.
Increased Auto Imports
But much of the increase was caused by higher automobile imports--$1.9 billion worth, compared to $1.5 billion in September--which analysts said was probably because of a temporary jump in shipments of 1987-model Japanese-made cars.
Exports of U.S. manufactured goods rose to $13.4 billion in October, up from $12.3 billion the previous month, partly because of an increase in exports of aircraft and aircraft parts.
Agricultural exports increased sharply and exceeded imports for the third month in a row. The farm trade surplus in October was $675.2 million, up from $138 million in September.
Oil and petroleum product imports declined to $2.7 billion in October, down from $3.1 billion in the month before.