US trade problems stage a comeback
The hopes of the world's financial leaders for a peaceful spring were blown away yesterday by a setback in United States trade figures. The closely watched US trade deficit widened $1.4 billion to $13.8 billion, sending the stock and bond markets sliding. (See story, Page 32).Skip to next paragraph
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The White House and most economists said the trade deficit was still improving in spite of the setback. But the markets took the news badly as an indication that the trade problems of the US are not over.
Many analysts had expected that the lower-valued, more stable dollar would continue to close the gap between US imports and exports.
The deficit, the largest since October, led to concern among economists that interest rates would shift higher, and the dollar lower. But a sharp rise in imports reflected in the deficit indicates the robustness of the American economy, economists said.
On the foreign-exchange markets, the dollar slipped against the Japanese yen, West German mark, British pound, and other currencies despite open attempts to prop up the greenback by the Federal Reserve Bank in New York and at least five central banks in Western Europe.
``It was a bad trade number,'' said Michael Andrews, international economist at Irving Trust Company. ``I don't see anything good in it.''
Imports of foreign products - including manufactured goods, oil, and farm products - increased $2.3 billion in February. US exports also rose, but by a smaller $1.3 billion.
Commerce Secretary C. William Verity said in a statement that the figures were disappointing despite what he called an ``underlying favorable trend.''
Seeing the weakening dollar, William Cline, an economist with the Institute for International Economics in Washington, noted: ``It is basically an ironic commentary by the real world on the Group of Seven pronouncement that the dollar is just fine.''
Only Wednesday, finance ministers and central bank governors of the US and its six major trading partners reaffirmed their pledge to keep the international value of the dollar stable.
In a communiqu'e, the seven industrial nations repeated a statement of last December ``that either excessive fluctuation of exchange rates, a further decline of the dollar, or a rise in the dollar to an extent that becomes destabilizing to the adjustment process could be counterproductive by damaging growth prospects in the world economy.''
Also on Wednesday, an International Monetary Fund official had been discussing the predictions in that multilateral institution's spring look at the world economy. It foresees no worldwide recession and no boom this year or next.
IMF analysts predict only modest growth in world output - 3 percent in real terms in 1988 and '89, with growth decelerating a little in the industrial countries and picking up in the developing countries.
Economists do not expect the dramatic reaction of the markets to the trade news to substantially modify that generally positive outlook, particularly if the trade figures for subsequent months put the US balance of payments back on an improving path. Nonetheless, economists do see the market reaction as prompting these trends:
Higher interest rates in the US.
Scott Pardee, vice-chairman of Yamaichi International (America), expects the Fed to engage in ``further snugging'' in monetary policy.
With the US economy showing greater strength than most economists expected, the Fed has already tightened a little in the last few weeks. Mr. Pardee, a former high Fed official, presumes the Fed will put somewhat more restraint on the economy now.