Trade deficit breaks record Asian crisis dries up market for U.S. goods, sends exports plunging

American economy at risk

Party atmosphere on Wall Street begins to sour as effect is felt

June 19, 1998|By NEW YORK TIMES NEWS SERVICE

WASHINGTON -- The Commerce Department released trade statistics yesterday showing that the U.S. economy was taking a bigger knock from Asia's financial crisis than had been expected.

The department also said yesterday that the nation's current account deficit, a broader measure of trade performance, expanded to $47.2 billion in the first quarter from $45 billion in the fourth quarter of 1997.

Commerce officials reported that the trade deficit for April expanded to a record monthly high of $14.5 billion, well above the $13.3 billion projected by many economists and up sharply from $13.2 billion in March.

The rise was partly accounted for by technical changes in the way the government measures aircraft exports, and it reflected the swollen value of the dollar in relation to Asian currencies.

But the figures showed that the deepening economic slump through much of Asia was drying up demand for many types of goods, costing U.S. exporters orders in what had been one of their fastest-growing markets.

Total exports in April fell by 2.5 percent, to $77.1 billion, the lowest level in 14 months. Imports decreased eight-tenths of 1 percent, to $91.6 billion.

The cumulative deficit with the Pacific Rim nations alone for the first four months of this year was $46.7 billion, a 38 percent increase over the same period last year.

The drop in exports suggests economic growth is slowing from a robust pace earlier in the year. A slowdown would reduce the risks of an increase in inflation, which many analysts think is the main threat to sustained economic health.

But it would also cut into job creation and further bite into corporate profits, a prospect that is already souring the party-like atmosphere on Wall Street.

Boeing Co., the largest U.S. exporter, expects a deepening recession in Asia to cost it orders for 90 aircraft over the next five years.

Farmers, manufacturers of industrial materials and automakers are also affected particularly hard by the export crunch, the Commerce Department said.

Texas Instruments is cutting 3,500 jobs worldwide -- 8 percent of its work force -- because of weak demand for semiconductors from Asia and deep price cuts by Asian competitors struggling to survive the downturns in their home markets.

"The trade situation has to have a real impact, and it points to a substantial slowdown in the U.S.," said Jim Glassman, an economist at Chase Securities in New York. "This is a serious shock we're having to absorb."

Glassman said he expects growth to slow to 1.5 percent in the second quarter from 4.8 percent in the first quarter, and to be flat in the second half of the year before rebounding in 1999.

Other analysts are less pessimistic, saying the economy is likely to continue growing, albeit at a more moderate pace, through the second half.

Debate continues among economists about whether Asia's effects alone will cool the domestic economy sufficiently to avert the need for an inflation-fighting interest-rate increase by the Federal Reserve Board.

But the trade figures underscore the stake the United States has in helping to bring Asia's downward economic spiral under control.

Asia's troubles have so far brought as many benefits as drawbacks to the United States, including lower interest rates that have helped fuel a housing boom and allowed many homeowners to save money by refinancing their mortgages.

But in the long run, economists said, the nation needs financial stability and economic growth abroad to sustain the vibrant domestic expansion that began in 1991.

Many fear a long slide in the value of the Japanese currency could exacerbate Asia's problems and infect the rest of the world. The Clinton administration joined with the Japanese government Wednesday to shore up the yen, a move that administration officials acknowledged was only a temporary measure.

The White House has been pushing Japan to do more to revive its own economy and help the rest of Asia. The administration also has been pressing Congress to provide more financing for the International Monetary Fund in case the financial instability spreads.

The rise in the dollar relative to the yen makes American products more expensive in Japan and makes Japanese products less expensive in the United States. Although the trade deficit with Japan narrowed in April, to $5.4 billion from $5.8 billion in March, economists said they expect the deficit to increase in coming months, reflecting the sharp run-up in the dollar relative to the yen between April.

The deficit with China expanded to $4.3 billion in April from $3.8 billion a month earlier. President Clinton leaves next week on a trip to China, and he is expected to press China to lower trade barriers to improve its chances of joining the World Trade Organization and help defuse political tensions with the United States.

Pub Date: 6/19/98

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