Washington — Trade is the crab grass in the lawn of the American economy. While a host of other economic indicators - like retail sales and industrial output - show signs of recovery, the US trade deficit is expected to continue sprouting like an unruly weed, economists say.
The merchandise trade deficit - the gap between what the US sells overseas and what foreign buyers purchase here - grew by $1 billion in April, reaching $4 .6 billion for the year.
And the deficit ''will get worse before it gets better,'' predicts Howard Rosen, a research associate at the Institute for International Economics here.
One reason the trade gap may grow is that the dollar is expected to remain strong at least through September, thus keeping the price of American exports high. Also compounding the deficit is the fact that the US is bouncing back from recession faster than its trading partners.
''So demand in those countries will grow more slowly than in the US,'' says Robert Davis, vice-president and economist at Harris Bank in Chicago. ''And that will tend to increase our imports faster than demand for our exports increases.''
As a result, the US trade deficit for 1983 is expected to reach the $65 billion to $75 billion range, Mr. Davis says. A $75 billion trade gap would be more than double last year's record $36.3 billion deficit.
Trade patterns have at least as much impact on Main Street as they do on Wall Street. ''To the extent we don't export goods and services, it means jobs are lost,'' says William Schwarz, vice-president and international economist at Manufacturers Hanover Trust Company.
For example, the machine-tool industry, which has laid off many of its workers, expects shipments to drop 34 percent this year. A key reason is that its exports are slated to drop ''by more than 30 percent,'' according to Raymond H. Blakeman, president of Iowa Precision Industries Inc. ''Most forecasters project little or no growth in the economies of the industrialized nations,'' he told the Congressional Joint Economic Committee.
In the past six calendar quarters, the drop in the value of net exports accounted for about 70 percent of the decline in real GNP, according to Manufacturers Hanover calculations.
The US trade deficit may eventually be self-correcting, economists say. Here's why: The merchandise deficit is offset by money US individuals and corporations earn on foreign investments and by fees earned in providing services overseas. The balance, which includes both merchandise and investment and service income, is called the balance on current account.
In 1982, the current account deficit was $8.1 billion and in 1983 the current account deficit could hit a record $23 billion, according to Manufacturers Hanover.
''If we maintain a current account deficit, we are flooding dollars into the rest of the world,'' says Mr. Davis, the Harris Bank economist. ''As we increase the dollar holdings of the rest of the world, people become less willing to hold dollars at the same exchange rate.'' So, as current account deficits rise, the dollar's value should fall, thus improving the outlook for export sales and discouraging imports.
''But the current account deficit doesn't do its work in terms of bringing the dollar down when it is being countered by high US interest rates,'' says D. Keith Hargreaves, international economics vice-president of Morgan Guaranty Trust Company of New York. High interest rates make foreign investors eager to buy dollars to invest in high-yielding, dollar-denominated investments.
Some international economists, including Mr. Hargreaves, foresee US interest rates falling by the end of 1983.
''Toward the end of the year, we expect not only will real interest rates decline but also the worsening trade picture will cause the dollar to weaken,'' says Mr. Schwarz, the Manufacturers Hanover economist. ''When that happens, our exports will become more competitive abroad.''
The dollar should weaken even if the US government budget deficit is not reduced significantly, some economists say. High budget deficits increase the amount of debt offered in money markets, thus tending to increase the interest rate needed to sell the debt.
The correction in the US trade deficit will not be rapid, experts warn. ''It will be a few years before the current account deficit is (significantly) smaller,'' Mr. Schwarz says.
And some economists fear the correction in the dollar's value may go overboard. The dollar can ''overshoot on the other side,'' says Mr. Rosen of the Institute for International Economics. ''There could be such a run on the dollar that it could become very weak.''
To counter such weakness, he would favor some form of intervention in currency markets. Possibilities include supportive statements by government financial leaders or coordinated monetary policies.
While the US trade problem is real, the data on our current account deficit is flawed, economists say. When the deficits and surpluses of all nations are totaled, they should equal zero. Instead last year there was a residual deficit of $80 to $100 billion.
If the US numbers are as flawed as other nations', our deficit could be overstated by as much as $20 billion, according to Morgan Guaranty estimates. That would eliminate last year's deficit and virtually wipe out the projected gap for 1983.