Booming June imports, led by a 25 per cent increase in purchases of foreign oil, pushed the U.S. trade deficit to its fifth monthly record in six months, a red-ink total of $2.8 billion, the Commerce Department reported yesterday.
For the first six months this years, the U.S. trade deficit is $12.59 billion, well on its way to fulfilling a Treasury prediction that the deficit will be in a range of $23 to $25 billion for the year as a whole.
The U.S. trade position began to deteriorate early in 1976. In that year, the deficit totalled $9.2 billion, a dramatic swing from a $9 billion surplus in 1975.
Treasury officials withheld detailed comment yesterday, pending release of quarterly data that will be published today. But the general theme among Treasury policymakers, conscious that the mounting trade deficit has been attracting increasing attention was to try to put the recent trend in some perspective.
They stressed that the deficit arises mostly from the U.S. bill for imported oil, which will run over $40 billion in 1977, and that except for oil, the U.S. continues to run a substantial trade surplus.
But in Bonn, West Germany, Assistant Secretary of Commerce Frank Weil said in a speech that "it could take us a decade or more to get back into sustainable equilibrium." Weil, who has been critical of Treasury policy, said continued big dificits could weaken the dollar, aggravate inflation and undermine economic growth.
The widening June deficit had generally been anticipated, especially in foreign exchange markets, where the dollar has been declining against the West German mark and Japanese yen. Both West Germany and Japan are enjoying substantial trade surpluses.
Treasury Secretary W. Michael Blumenthal told the Washington Post in an interview last week that while much of the depreciation against the mark and the yen had already taken place, he was content to let the dollar float down further. Against an average of all currencies, the dollar depreciation has been only slight. But against the mark it is down about 3 per cent, and against the yen, down about 10 per cent.
But Federal Reserve Chairman Arthur F. Burns, in congressional testimony Tuesday, expressed concern over dollar depreciation. He said the U.S. had "the responsibility to protect the integrity" of the American currency. A cheaper dollar tends to make imported goods more costly, adding to inflationary pressures.
In a statement yesterday designed to quiet reports of a major confrontation between Burns' and the administration views, a Treasury spokesman said "there is no disagreement between the administration and Dr. Burn on U.S. exchange rate policy."
Although the increase in oil imports in June to $3.9 billion from $3.1 billion in May accounted for the bulk of the larger June deficit, there were increases in imports in 9 out of 10 major categories, including autos, machinery pulp and waste paper, clothing, and some chemicals and metals. All told imports increased 11 per cent in a broad range of key products including soybeans, crude materials and aircraft.
The Treasury tended to view the enormous trade deficit with relative equanimity until about a month ago, when criticism began to surface, both inside the administration and in Congress that it was treating the matter too casually.
Blumenthal took the position that the overall U.S. current account position, which reflects U.S. earnings abroad and other "invisibles" as will as the trade balance, was about in line with U.S. responsibilities to share the world-wide deficits caused by the oil cartel surpluses. He estimated that the U.S. current account deficit for 1977 would be about $10 to $12 billion.
At the same time, Blumenthal assumed that the depreciation of the dollar against the mark and the yen would effectively reduce the German and Japanese trade surpluses, and thus help shave the U.S. trade deficit.
But following a June 21 speech by Weil warning about the size of the deficit, and similar remarks made on the House floor by Rep. Henry S. Reuss (D. Wisc.), Blumenthal said that "there is no belittling the fact that a $25 billion deficit is too larget - and is something that has to be carefully watched and reduced."
An unspokesman transum concern is that high monthly trade deficit figures will increase already significant pressures for trade protectionism.
Officials concede that there is little that can be done in the short run to reduce dependence on foreign oil, although successful conservation policies eventually would reduce the collective current account deficit of the oil importing countries.
For the immediate future, Treasury officials stress that the trade deficit will remain high, and that the most important policy step is get achieve an equitable "sharing" of the current account deficits. For that reason, they have stressed flexibility in exchange rates, for both surplus and deficit countries.In commenting on Burn's Congressional statement the Treasury statement said:
"We support a flexible exchange rate system in which the dollar's value is determined fundamentally by underlying economic, and financial conditions.
"Dr. Burns has stressed the need to protect the integrity of the dollar for international as well as domestic reasons. The way to accomplish that and maintain the value of our currency, at home and abroad, is to maintain a strong, stable, non-inflationary U.S. economy, and that has been and continues to be the focus of our efforts.