US Trade Gap Hits New High, But Maybe That's Not So Bad

The Asian crisis is starting to affect Main Street.

Orders are drying up for beef from Wyoming, soybeans from Iowa, cotton from Louisiana, pork from Illinois, and apples from Washington. At the same time, trucks are whisking low-cost computers from Korea, dresses from Thailand, and shoes from Kuala Lumpur to US retailers.

Yesterday, the US Commerce Department said this trade gap swelled to a record $14.5 billion in April, up 9.5 percent from March, the previous record.

The surging numbers are the result of a deep slump in Asia and a strong US economy, which is sucking in imports. However, perhaps surprisingly, there is little outcry over the surging imports.

"We've been looking for ways to slow our growth," says Bob Dederick, a consulting economist with Northern Trust Company in Chicago. "So we should only be concerned about the trade deficit if it creates a bigger-than-expected drag on the economy."

Economist Bruce Steinberg of Merrill Lynch & Co. in New York adds there is no need to be concerned. "It's our global duty to be the importer of last resort," he argues.

This is a major shift in the way the trade deficit was viewed in the mid-1980s, when the US was also running a record trade imbalance. The trade gap came when the US budget was deeply in the red. Economists referred to them as the "twin deficits."

Now, the US budget is in surplus. And, the trade number is viewed in a positive light.

In fact, the growing tide of imports is helping to keep domestic prices down. So far this year, the total price of imports is down 3.5 percent. However, the prices of some products made in Asia are off even more.

"Some Asian companies are desperate - they're hoping if they ship it here, someone will buy it," says David Wyss, an economist at McGraw-Hill Companies in Lexington, Mass.

The trade-deficit numbers were higher than Wall Street economists expected. But they had little impact on the markets, which were still digesting the US Treasury's currency intervention on Wednesday. The government sold dollars to support the sliding Japanese yen.

Now, currency traders are waiting to see what happens when US officials meet with Japanese officials today and tomorrow. "They have got to have an announcement of an accord with Japan over the weekend or the dollar will bounce right back up," says Mr. Wyss.

In the past, there have been political ramifications when the US runs record trade deficits. This time is no exception.

Yesterday, the Senate leadership met with the American Farm Bureau to address the trade issue. "Both fast track and most-favored-nation status for China are back on the table," says Barbara Spangler, director of government relations for the bureau, which lobbies for agricultural interests. "They have to give us the option of some new places for our products to go."

Others are complaining too. For example, Boise, Idaho-based Micron Technologies, which makes memory chips for computers, is upset over what it terms the "dumping" of computer chips by South Korean companies.

Micron chief executive officer Steve Appleton lobbied hard to prevent any of the $18 billion the US plans to give to the International Monetary Fund from helping South Korean chip makers. In part because of the competition from imports, prices for Dynamic Random Access Memory chips have fallen from $60 in December 1995 to $2.50.

But the trade picture is also complicated by an enormous number of cross-border manufacturing agreements. For example, Intel partially manufactures computer chips at a facility in Albuquerque, N.M. Those chips are then exported to Kuala Lumpur to be completed. They are then sent back to the US.

"It looks like we have a massive deficit with Asia," says Doug Andrey, an analyst with the Semiconductor Industry Association in San Jose, Calif. In reality, he says semiconductor imports, made by foreign-headquartered companies, are at their lowest market penetration since 1987.

The trade picture is much clearer for the farmers. Most of the US grain exports are used to feed animals. Now, it's too expensive for Asian farmers, who are slaughtering their chickens, pigs, and cattle. The result is low demand for US farm products. "It's real tough out there," says Ms. Spangler, "It's a belt-tightening year."