Trade gap widens to $12 billion, fueling Democratic rhetoric. But Republicans stress that long-term narrowing is on track
After basking for months in favorable economic news, the Republicans received a jolt yesterday when the government reported that the nation's trade deficit widened in August. The Commerce Department said the United States' merchandise trade deficit expanded to $12.18 billion from $9.47 billion in July. Although US exports surged to record levels, imports, up 10 percent from last month, also soared to an all-time high.
The Democrats were quick to jump at the news. ``Today the facts spoke back to George Bush,'' says Sen. Lloyd Bentsen, the Democrat's vice-presidential nominee. ``This has to stop. America needs a change in leadership,'' he says.
But the Reagan administration was ready to defend itself. US Trade Representative Clayton Yeutter said the bad news was expected since the July numbers were ``uncharacteristically'' low. He pointed, instead, to numbers from the first eight months of the year, which had dropped to the $138 billion level - down from $170 billion last year.
But to some critics, even this lower level is not good enough. ``The trade deficit has plateaued. It is not shrinking,'' says Michael Aho, co-author of a new book, ``After Reagan: Confronting the Changed World Economy.'' Coming to grips with the trade deficit, Mr. Aho says, will be one of the first challenges for the next president.
The financial markets yesterday morning took the news in stride. The Dow Jones industrial average, which dropped 30.23 points Wednesday, gained 10.14 points by noon. Only a year ago, reports that the trade deficit had hit $14 billion helped drag the market down one trading day before the 508 point plunge of Oct. 19. (Black Monday anniversary, Page 16.)
``The number was clearly a negative, but not an overwhelming negative,'' says Wall Street economist John Paulus, explaining why the markets reacted better this time.
This feeling was reflected in the bidding for the dollar on the foreign exchange markets where the US currency initially opened sharply lower, but recovered later in the day. But, with the trade gap not showing much improvement, enthusiasm for the dollar was lacking. ``It looks like the dollar will have to go lower,'' says Mr. Paulus.
One reason the trade gap widened in August was the rise in imports of capital goods, especially computers and electrical machinery. Since January, US businesses have been using these goods to expand production capabilities, reflecting their success in selling products overseas. Thus, some analysts expect trade numbers to improve in the future. ``A lot of these imports are going to more US companies so they can be more competitive,'' says Steve Cooney of the National Association of Manufacturers.
Meanwhile, US consumers have snapped up more imported clothing and electronics, contributing to the surge in imports from Japan and Taiwan. Foreign car imports rose by $700 million, but are still several billion dollars below last year's level.