WASHINGTON — The U.S. trade deficit shrank to a six-year low of $99.3 billion in 1990, and economists say allied contributions for the Persian Gulf War should translate into an even more dramatic improvement this year.
The Commerce Department said Tuesday that the broadest measure of trade, called the current account, narrowed by 9.8% from a trade gap of $110 billion in 1989 as U.S. merchandise exports climbed to an all-time high and a record number of foreign tourists visited America.
The current account, also known as the balance of payments, is considered the most important trade statistic because it measures not only trade in merchandise but also investment flows between countries and earnings on tourism and other services.
The 1990 deficit was the smallest since a $99.01 billion deficit in 1984, and it marked the third consecutive year of improvement since hitting a record of $162.31 billion in 1987.
David Wyss, an economist with DRI-McGraw Hill, said this year's current account deficit could be cut by more than half, falling to around $40 billion.
The bulk of that improvement will come from the $53.5 billion in contributions pledged by American allies to defray the costs of the Persian Gulf War, much of which will be counted as a kind of reverse foreign aid and will directly reduce the current account deficit.
Wyss and other economists said the improvement this year would be a one-time phenomenon, with the deficit for 1992 returning to a level of about $75 billion to $80 billion.
In addition to the allied contributions, the 1991 deficit will be cut by a modest amount by continued improvements in U.S. export sales abroad, analysts said.
Strong demand for merchandise exports has helped cushion the severity of the current recession, and the Bush Administration is counting on continued demand this year to help pull the country out of the downturn.
However, private analysts said the Administration may be pinning too much hope on this sector, given spreading weakness in overseas markets.
"We will continue to get export growth this year, but it will not be as rapid as the past two years," said Bruce Steinberg, an economist with Merrill Lynch. "Exports by themselves are not enough to pull the country out of recession."
Although operations Desert Shield and Desert Storm are expected to improve the bottom line this year, the Persian Gulf conflict actually added to the fourth-quarter deficit, which edged up 4.8% to $27.76 billion.
While $4.3 billion in contributions lowered the deficit, this was more than offset by a $7.1-billion charge that represented a writeoff of loans to Egypt, an action taken to reward that country for joining the coalition fighting Iraq.
At the beginning of the 1980s, the United States enjoyed annual surpluses in its current account as perennial deficits in merchandise trade were offset by overseas investment earnings.
But as Americans handed over billions of dollars to foreigners to pay for a flood of imported cars and television sets, the investment cushion eroded. It disappeared altogether in 1985 when the United States became a net debtor for the first time in 71 years.
(Southland Edition) U.S. Current Account The broadest measure of U.S. foreign trade Quarterly balance in billions of dollars 1989 3rd quater: $27.6 4th quarter: $26.7 1990 1st quarter: $22.3 2nd quarter: $22.7 3rd quarter: $26.5 4th quarter: $27.8 Numbers are rounded Breakdown by category In billions Fourth quarter 1990 All Services: +$5.90 Merchandise Trade: -$28.86 U.S. foreign aid and pensions for Americans living abroad: -$9.11 Investment Income: +$4.26 Source: Dept. of Commerce