Worsening US trade deficit threatens to revive tensions

THE US trade deficit took a further turn for the worse in April as exports sagged. The ostensible reason was the steady weakening of the Asian economies, but the figures showed that US manufacturing exports to the rest of the world were just as weak.

The deficit in April was $14.6bn (pounds 8.8bn), up nearly 10 per cent from the March figure of $13.2bn. Imports fell by 0.9 per cent, but that did not outweigh a 2.6 per cent drop in exports from $79.2bn to $77.1bn. The deficit for the year is running at an annualised rate of about $150bn, up from $110bn last year.

Part of the decline in exports was caused by the weakening of the Asian economies, as the US trade gap with China increased to $4.28bn, the largest since last October, and the deficit with Taiwan rose to $1.14bn. But the trade gaps with Japan and Korea actually declined. The deficit with the European Union almost doubled from $1.44bn to $2.85bn as exports plunged, and the deficit with Canada also deteriorated. Manufactured trade accounts for the bulk of the decline, as commodity prices have fallen. Aircraft sales, always a lumpy and potentially unbalancing item in trade accounts, have fallen heavily.

This broader deterioration in America's trade fortunes may be because it is growing fast at a time when the rest of the world, even outside Asia, is expanding relatively slowly, or it may be because cheap Asian exports are outpricing US goods in third-country markets. In either case, it threatens a revival of the trade tensions between the US, Asia and Europe that were a marked feature of the 1980s. The US is now trying to persuade Japan to boost its economy, and China not to devalue its currency, in an effort to prevent a further decline in the regional economy. The deficit with Asia is up about 40 per cent on last year.

The broader measure of US trade, the current account, has also deteriorated. In the first quarter of this year it increased to an all-time high of $47.2bn, up from $45bn in the fourth quarter of 1997.