Thursday, May 21, 1998

Asian woes swell U.S. trade deficit

WASHINGTON (AP) -- The Asian currency crisis hit America full force in March, pushing the month's trade deficit to a record $13 billion. Trade gaps with Japan and China soared as imports of cars and food climbed to the highest levels ever.

The Clinton administration insisted Wednesday that the fallout on the U.S. economy from Asia's troubles should still be manageable despite the worse-than-expected trade performance.

But Treasury Secretary Robert Rubin left no doubt that this benign forecast could be upset if the economies of Indonesia, South Korea and Thailand don't stabilize.

"The concern we have always had is that if these countries don't recover, this could spread to other countries and what is a minor problem for our country could become a severe problem," Rubin said in an NBC interview.

The $13 billion March deficit in goods and services was up 7 percent from February's $12.2 billion imbalance as a surge in foreign goods pushed imports to a record high of $92.4 billion. U.S. exports, bolstered by a big rebound in jet sales, rose 3.3 percent but American producers continued to suffer in many Asian markets where U.S. exports are down 10 percent from a year ago.

The overall deficit was the largest imbalance since the government began tracking goods and services on a monthly basis in 1992. For goods alone, the $20.2 billion deficit was the largest in history.

Analysts predict this year's overall deficit will easily be the worst in history as crumbling Asian economies cut back on U.S. exports while their weaker currencies make their products cheaper in the American market.

"With much of Asia still mired in recession and with Japan stagnating after several failed efforts at recovery, the deficit with Asia will get worse before it gets any better," said Howard Lewis of the National Association of Manufacturers.

Sen. Byron Dorgan, D-N.D., a leading critic of administration trade policies, said the new report should serve as a wake-up call that "our trade policies are soft-headed and weak-kneed. Too many of our trade agreements have been incompetently negotiated and rarely enforced."

Clinton, in Geneva on Monday, urged the 132-nation World Trade Organization to launch new global trade talks next year to signal that governments will continue pushing for lower trade barriers as a way to prosperity for all nations.

The president suffered an embarrassing defeat last fall when opponents, many in his own party, blocked his effort to win the congressional authority he will need to negotiate new trade deals. The administration has signaled it will not even try to win such "fast-track" approval this year, given the looming congressional elections.

Because of the uncertainty over Asia, Federal Reserve policy-makers on Tuesday held off raising U.S. interest rates, not wanting to roil financial markets when they are already on edge because of violent rioting against the 32-year rule of Indonesian President Suharto.

For March, America's deficit with Japan jumped 8.8 percent to $5.8 billion, the worst showing in five months as imports of machinery and telecommunications products jumped.

While Clinton praised Japanese Prime Minister Ryutaro Hashimoto last week for putting forward a credible economic stimulus package, U.S. officials let it be known Wednesday that Japan must quickly implement the package and do more to lower trade barriers.

Commerce Undersecretary Robert Shapiro noted that so far this year, U.S. exports to Japan are down 10 percent while imports from Japan are up 2 percent. He blamed the widening trade gap on "continuing weakening of the Japanese economy, along with her trade barriers."

The deficit with China jumped 7.8 percent to $3.8 billion as U.S. exports fell. Clinton will travel to China next month and he is expected to underscore that China's entry into the WTO, which the United States is currently blockling, will come only when the Chinese open their economy to more U.S. products.

The big jump in imports reflected the continuing strength of consumer demand in a U.S. economy where unemployment has fallen to a 28-year low. Record import levels were recorded for consumer goods, autos and auto parts, capital equipment and food.

America's trade woes were widespread in March with the deficit with European countries rising sharply as well. The deficit with Germany hit a record $2.3 billion, reflecting a big jump in imports of German cars.

The overall deficit would have been worse except for the fact that oil prices have been falling sharply. The average price for a barrel of foreign crude oil dipped to $11.95 in March, the lowest level since March 1994.