Mixed blessings of a record trade gap

As Carline Nazaire Gomez looks through the sweaters at Venessa Boutique on 42nd St, she's keenly aware of the style and price of each item. With a child and husband at home, she's on a budget. But one thing she doesn't look at is where the garments are made - in this case Korea.

"I don't really care where it comes from. As long as [it] looks nice, I purchase it," says the administrative assistant.

Ms. Gomez is not alone: Americans are buying imported goods at a record pace.

Their buying habits point up a growing dichotomy for the American economy: While the surge of imports is good for many consumers, it is creating a trade deficit that some consider unsustainable over the long term.

"We've never had a period when there was such a large [gap] in our trade account," says says Mark Zandi, chief economist at Economy.com, a Web site.

Yesterday, the Census Bureau reported the nation's current account deficit, the difference between our exports and imports of goods and services, swelled to a record $113.8 billion, up from $105 billion in the second quarter. If the gap were to continue at this pace, it will come in at $434 billion for the year, compared with $332 billion last year.

One of the reasons for the large increase is the soaring price of oil.

But almost all other categories of imports, from apparel to electronics, are higher as well. The imports now represent a record 4.3 percent of the nation's gross domestic product (GDP).

Still, many economists aren't panicked by the latest numbers. "The current account deficit will stabilize and begin to improve as the US economy slows," says Bruce Steinberg, chief economist at Merrill Lynch & Co. in New York.

Economists believe the trade deficit may be within six to 12 months of peaking. Imports are expected to slow down as the US economy slows.

Unfortunately, US exports are also expected to decline since foreign economies are also gearing down. The decline in our trade deficit "won't be as soon as one would think, because the entire global economy is struggling," says Mr. Zandi.

Up to this point, the trade deficit has not been a problem, since foreigners have been willing to buy US stocks, bonds and real estate. But Zandi says they may be less willing in the future since the US stock market had a disappointing year and there might be better opportunities to make money in other countries.

This could hurt the value of the dollar - and hence, Americans' ability to purchase global goods. The latest report shows a marked slowdown in financial investments in the US from overseas investors.

"What has not been a problem could become one," he says. "If the US economy sputters and the trade deficit is one of the reasons, it might be at the top of the agenda for the first time since the 1980s."

The swelling trade deficit has not escaped official notice in Washington.

Two years ago, Congress formed the Trade Deficit Review Commission, made up of 12 economists, business and union leaders, and politicians. They were equally divided among Republicans and Democrats. A month ago, after 10 public hearings it issued a 290-page report.

The report illustrates how difficult it is to reach a consensus on what to do - if anything - about the deficit. Every chapter, from the causes of the deficit to the consequences, has a Republican and Democratic viewpoint.

In a letter to President Clinton, economist Murray Weidenbaum, the chairman, said he hoped the report would at least spark a review of the importance of international trade to the US economy "and how to shape our national policies to best strengthen our country's economic health and promote a rising standard of living for all Americans."

One of the Democratic members, George Becker, president of the United Steel Workers of America, hopes that Congress holds a hearing to review the commission's findings - and perhaps get some media attention.

Because of the uncertainty over the election, he says the report received virtually no press.

"You could not buy space," he quips, adding, "But we think it's critical that the new administration get hold of this issue as quick as they can."

For example, he says the steel industry is in a "virtual collapse. We are appealing to President Clinton in the last few days of his administration to begin a Section 201 process to save the industry from being wiped out," says Mr. Becker. A section 201 action gives a domestic industry relief from import surges.

"We can't wait another month," he says.

Staff writer Alexandra Marks contributed to this story.

(c) Copyright 2000. The Christian Science Publishing Society