Record Exports Shrink Trade Gap But U.S. Still On Track For Worst Deficit In A Decade Despite Strong June Showing

The U.S. trade deficit narrowed as exports hit an all-time high and imports shrank for the first time in eight months. But the deficits with Japan and China rose sharply, drawing a rebuke Wednesday from the Clinton administration.

The Commerce Department said the nation’s overall trade deficit narrowed 14.5 percent in June to $8.16 billion, compared to a $9.4 billion trade gap in May.

But even with June’s improvement, the deficit for this year is still on track to be the worst showing in a decade as trade continues to be the major weak spot for the U.S. economy.

President Clinton, who vowed to make trade a key component of his foreign policy, has seen the deficit rise every year he has been in office, providing a target for critics who contend the administration’s high-profile free trade agreements and market-opening deals with Japan and China have failed to reap benefits for American workers.

The administration is particularly sensitive to that type of criticism, given that Clinton will launch an effort next month to win congressional approval for the authority he needs to expand the North American Free Trade Agreement with Mexico and Canada to the rest of the Western hemisphere.

While the overall deficit was declining in June, America’s trade gap with China jumped 15 percent to $4.3 billion. A flood of Chinese clothing, shoes and toys pushed the monthly trade gap with China above that with Japan for only the fourth time on record.

America’s deficit with Japan also was up substantially, rising by 11.6 percent to $4.1 billion. Imports of Japanese cars and automotive products rose while American automotive sales to Japan fell.

Commerce Secretary William Daley said the performance of China and Japan in lowering trade barriers to American products had been disappointing. The administration released a letter to the Japanese government written by Daley and U.S. Trade Representative Charlene Barshefsky, complaining about Japan’s slow pace in opening up the market for auto part sales.

Daley said the United States would seek faster deregulation when both countries meet in September to review a 1995 agreement aimed at boosting sales of American-made cars and parts in Japan.

On China, Daley said he expected to have “frank” discussions with Chinese officials when he visits that country next month.

“We’ve got to be very emphatic about our feeling,” he told reporters during a briefing on the trade figures. “Our goods are competitive. We’ve proven that throughout the world … and there’s no reason they can’t be competitive in China.”

The $8.16 billion overall deficit for June, the smallest trade gap since March, was much better than private economists had been forecasting. They predicted that the better-than-expected trade numbers will help lift economic growth to 3 percent or better in the second quarter, up from an original estimate of only 2.2 percent.

This expectation fanned fears on Wall Street that the Federal Reserve will be compelled to raise rates when they meet in September because the economy has not slowed enough to keep inflation in check. The Fed passed up a chance to raise rates Tuesday.

In the first six months of this year, America’s trade deficit was 6 percent wider than during the same period last year when the deficit hit an eight-year high of $111 billion.

“We are on track to see the deficit go higher again this year. We have not seen the full impact yet of the dollar’s strength,” said Lawrence Chimerine, an economist at the Economic Strategy Institute. He predicted this year’s imbalance could hit $120 billion.

Economists blame the worsening U.S. deficit on a strong dollar making imports cheaper in this country and weakness in key U.S. export markets.

For June, the deficit with Mexico, which had climbed to record levels, narrowed 29 percent to $1.2 billion as American exports to that country hit an all-time high, a development Daley credited to NAFTA.

Overall, U.S. exports of goods and services edged up 0.9 percent to a record high of $78.4 billion, led by strong gains in sales of computer products and U.S. autos to countries other than Japan.

Imports, which had set seven straight monthly records, dipped a slight 0.7 percent to $86.6 billion. It was the first decline since last October and reflected in part a 4.5 percent drop in America’s foreign oil bill, which dipped to $5.8 billion.