U.S. trade deficit strikes record high with Japan

October 20, 1994|By New York Times News Service

WASHINGTON -- The U.S. trade deficit with Japan jumped 2.4 percent in August, sending the dollar down briefly yesterday near its lowest level since the end of World War II.

By the end of the day, the dollar had recovered slightly, to 97.35 yen to the dollar, but it was clear that the revival of the U.S. currency's strength that surrounded a new trade agreement with Japan late last month was a flicker, not a recovery.

The Clinton administration took some solace in the fact that the monthly trade deficit with the rest of the world improved significantly, shrinking 12.9 percent, to $9.74 billion, on the strength of a surge in exports.

But just weeks before President Clinton travels to Indonesia for a meeting with Asian leaders, the figures clearly showed that U.S. trade problems were concentrated in two countries: Japan, whose surplus seems resistant to all cures, and China, which during the last year hasbegun to prove that multi-billion dollar surpluses are not bred only in Tokyo.

The trade figures announced yesterday seemed likely to put new pressure on the administration to deal with a deficit with Japan that has already exceeded $41 billion this year and -- if current trends continue -- could soar higher than $60 billion to a new record.

For the month of August, the deficit with Japan was $5.8 billion, not a drastic increase but a striking enough headline on traders' computer terminals to send the dollar spinning.

The reaction in the unforgiving foreign exchange markets to the worsening deficit with Japan showed how short-lived are victories like the one the administration claimed last month -- a long-sought agreement to open the Japanese insurance, medical and telecommunications equipment markets.

Late last month, as the agreement seemed likely, the dollar began to strengthen considerably, rising to about 99 yen to the dollar. After the agreement was announced, it crept up a bit more, hovering at slighter more than 100 yen.

But it soon became clear that the new agreement was likely to only make a dent of roughly $2 billion in the trade gap when it was fully implemented. That represents less than 4 percent of the total deficit -- a politically insignificant change. Now, the trade agreement is no longer being used to explain the dollar's movements.

In private, some officials in the administration who deal regularly with Japan acknowledge that they are out of fresh ideas about the way to approach trade issues. They have tried to keep them on the back burner, while Washington tries to win Japanese cooperation on a range of other issues.

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