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Trade Gap Widens to Six-Month High

Economy: July figures reflect growth in U.S., analysts say, and could arm foes of Clinton's 'fast-track' bill.

September 19, 1997|ART PINE | TIMES STAFF WRITER

WASHINGTON — The nation's foreign trade deficit widened in July as Americans, resuming their spending spree as economic good times continued, stepped up purchases of imported goods, the government reported Thursday.

Commerce Department figures show that the United States imported $10.3 billion more than it exported during the month, up from a revised $8.3-billion red-ink figure for June and the largest monthly deficit since January.

Economists said the increase stemmed mainly from the fact that the U.S. economy has been stronger than those of its major trading partners, enabling Americans to buy more imports as foreigners are buying fewer U.S. goods.

Nevertheless, the widening was expected to provide more fuel for opponents of President Clinton's proposed "fast-track" trade bill, who have been blaming the trade deficit on current U.S. trade policies. The measure would enable Clinton to negotiate more free-trade agreements.

Thursday's report also showed a sharp increase in the U.S. trade deficit with Japan: It rose to $5.2 billion in July, up from $4 billion during June. By contrast, the U.S. deficit with Mexico fell, from $1.2 billion in June to $987 million in July.

The Clinton administration sought to put a good face on the trade statistics. Commerce Secretary William M. Daley said that while the overall deficit figure is higher, the trade balance is improving in the manufacturing and services sectors.

Meanwhile, in St. Louis, House Minority Leader Richard A. Gephardt (D-Mo.) blasted the administration's trade policies for failing to have resolved labor, environmental and human rights problems in countries such as Mexico, with whom the United States has trade-liberalization accords. Gephardt, who opposes the president's fast-track proposal, is expected to challenge Vice President Al Gore for the Democratic nomination for president in 2000.

"Our current trade policy is taking us in the wrong direction," Gephardt said in a speech made available by his Washington office. "We are in danger of promoting economic growth that divides rather than unites."

Thursday's reports show that U.S. imports of foreign goods and services rose by $900 million, or 1.1%, to a record $87.7 billion in July. Exports fell by $1.1 billion, or 1.4%, to $77.38 billion. The overall deficit for June initially was estimated at $8.2 billion.

The increase brought the overall U.S. trade deficit back to the same level as the second half of last year, when it hovered between $10 billion and $11 billion. The deficit hit $11.6 billion in January and then had declined for most of 1997.

Analysts forecast that if the current trend continues, the trade deficit for the year could soar to $135 billion--up from $114.5 billion in 1996. The worst red-ink trade figure the United States has posted was in 1987, when the deficit reached $152.9 billion.

Continued large trade deficits generally are not considered desirable because they drain capital from a country, eventually leading to a fall in the value of its currency and forcing policymakers to raise interest rates to attract capital back.

However, the United States has run large trade deficits since the mid-1980s without any major adverse consequences because it has been able to attract sufficient foreign investment to offset the gap. By and large, the dollar has continued to rise.

Economists were sanguine about the July trade statistics. Ronald Talley, chief economist for WEFA Group, a major forecasting firm, said the July increase is "not a problem" because it mainly reflects the strength of the U.S. economy.

Cheryl R. Katz, an analyst for Merrill Lynch & Co., said the larger deficit also is likely to help slow overall economic growth this quarter, easing pressure on the Federal Reserve Board to raise interest rates in order to prevent the economy from overheating.

Besides the fact that the United States is growing more rapidly than most of its trading partners, the trade balance also has been affected by the continuing strength of the U.S. dollar. A strong dollar makes imports cheaper for Americans and makes U.S. exports more expensive overseas.

The trade picture for July was helped somewhat by falling oil prices. The price of a barrel of crude oil fell to $16.50 over the month, from $17.07 in June. Petroleum imports account for an important share of overall U.S. imports.

Clinton sent his fast-track proposal to Congress on Tuesday, setting off a fierce political battle with liberal Democrats, who contend that the measure would not do enough to prod other countries into adopting strong labor and environmental standards.

The accords the administration is seeking would press other countries to reduce their trade barriers and allow in more U.S. exports and investment. The bill would require Congress to vote on those accords as they are negotiated and not try to amend them on the floor.

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