Threat of a yawning trade gap
At $21 billion a month, it siphons US jobs and could undermine economy
NEW YORK — America's widening trade deficit - now more than $21 billion a month - is starting to cause concern in the top echelons of the United States.
While the trade gap has been growing for years, it is becoming large enough that experts are increasingly worried it will slow the "miracle" economy of the 1990s.
Already, the federal government estimates the US has lost 422,000 manufacturing jobs in the past year - in part because of a decline in exports. The US complains trade impediments are hurting sales of everything - from American-made backhoes in Japan to windshields in Korea to cell phones in China.
At the same time, cheap products from overseas - Chinese apple juice, Australian lamb, Taiwanese computer chips - are pouring into the US, undercutting domestic firms. "The trade deficit is becoming more of an issue - big imbalances are not sustainable forever," says Robert Hormats, vice chairman of Goldman Sachs International in New York.
Increased anxiety about the trade numbers is visible from Washington to Wall Street:
*Last week, Federal Reserve Chairman Alan Greenspan warned that, unless reversed, trade imbalances "are apt to create significant problems for our economy."
*This week the US will send a top trade official to China, Japan, and South Korea in hopes of opening up more markets to US goods - everything from construction equipment to car parts.
*Next month, the US Trade Deficit Review Commission, a congressionally appointed group of economists and trade experts, will hold its first public hearing on the causes of the trade gap.
To a certain extent, the growing deficit underscores how strong the US economy is and how far many of its trading partners - particularly in Asia - still have to go to revive.
"We need recovery in Asia and more growth in Europe, and we need markets to be opened up," says David Aaron, undersecretary for international trade in the Commerce Department. Mr. Aaron begins a round of meetings in Asia starting today.
In May, the US trade deficit in goods and services ballooned to $21 billion - a record - up $2.7 billion from April. The administration now forecasts a goods-and-services deficit of $225 billion this year.
When it comes to manufactured goods, the US will do even worse - a projected $307 billion deficit. Normally, US exports grow about 7 percent a year. So far this year they're down 2.4 percent.
Besides the concern about jobs and a possible slowing of the economy, the widening trade gap could eventually affect interest rates.
As America imports more than it exports, foreigners buy US securities, such as Treasury bills. If overseas investors were eventually to pull out of the US financial market, Washington would be forced to raise capital at home - which could force the Fed to raise rates. That, in part, is what worries Mr. Greenspan.
But the question remains: What can the US do to reduce the yawning trade gap?
Many free-trade advocates argue the US needs to take the lead in pressing for a new international treaty that would open up fresh markets. Late this fall, trade ministers from around the world will meet in Seattle to discuss the framework for a possible agreement.
But economists such as Hormats say the administration needs fast-track authority as well. Under this regimen, Congress agrees to vote yes or no on a treaty - and not make any changes. So far, lawmakers - including many Democrats - have twice voted down giving the Clinton administration such authority, in part out of concern that US jobs would go offshore.
"There have been 25 new trade liberalization agreements negotiated - including some in our own hemisphere - while we have been sitting on the sidelines," Hormats says.
OTHERS agree that opening up new trading opportunities would help - but only up to a point. "There is no way we could totally eliminate the trade deficit if we got rid of every trade barrier in the world because of differences in macroeconomic policy," says former US Trade Representative Clayton Yeutter. "We can't sell our goods to people who have no money to buy them."
The congressional commission hopes to shed some light on the deficit when it issues its report in a year. "Among the issues we'll look at is how much is structural - such as the importation of oil," says Mike Wessel, a commission member.
In the meantime, the administration is starting a new effort to open up Asian markets. The US trade deficit with Japan has reached $66 billion over the past 12 months. It hit $57 billion with China in 1998.
Aaron's first stop on his Asian trip is Beijing. On his agenda: exploring whether the Chinese are unfairly preventing the US from selling power-generating equipment in the country. He also plans to encourage them to open their telecommunications markets.
In Japan, Aaron hopes to gain more access for US makers of construction equipment. He complains that in some market areas the Japanese have actually "gone backwards."
It's "unacceptable that the US should have 0.02 percent of the construction market in Japan, when in most parts of the world we have 30 percent."
President Clinton has approved the use of a law that allows the US to investigate whether construction firms are treated unfairly in Japan. This could eventually lead to sanctions against Japanese companies.
On his last leg of the trip in Seoul, Aaron will address concerns that Koreans are exporting large quantities of steel cheaply to the US. He also sees resistance to buying US-made autos. "They agreed to open up their markets, but it's just not working," Aaron says.
(c) Copyright 1999. The Christian Science Publishing Society