Commerce Secretary Malcolm Baldrige said yesterday it appears that the United States has become a net debtor nation, a status usually associated with developing countries and a dubious distinction this country has not had since 1914.
Economists have said in the last few years that the United States was headed in the direction of becoming a net debtor nation, but they haven't pinpointed exactly when it would occur.
Commerce Department figures released yesterday showed the nation's deficit on current account -- trade in goods, services and investment earnings with the rest of the world -- was $30 billion in the first quarter, which would have wiped out the $30 billion surplus on investment earnings remaining at the end of last year.
If the figures released yesterday hold up after revisions, the United States crossed the historic threshold to become a net debtor nation around the end of March.
What the net-debtor position means is that the United States now owes foreigners more than they owe this country and, as a result, the flow of dividend and interest payments to foreigners will exceed those payments to the United States.
The accumulation of those payments will be added to the already historically high deficit in trade and services, and U.S. companies will have to export more than ever to get foreign currency just to pay interest on the accumulating debt.
"During the next few years, the outflow of these payments will be small, but it is essential to stop the flow of red ink before it becomes a strong tide," Baldrige said yesterday. "We must proceed quickly to cut government spending to bring interest rates down further to help lower the dollar and our trade deficits."
According to the Institute for International Economics, the United States will owe, in interest alone, $100 billion annually by 1989. By that time, assuming no change in current economic assumptions, the United States will have accumulated $1 trillion of debt with the rest of the world, said Howard Rosen, assistant to the director of the institute.
Although the United States has not had a surplus on trade in goods since 1975, its surpluses on investment earnings generally were enough to cover trade deficits.
Baldrige said the country's net international investment position "probably was close to zero at the end of the first quarter." If it was slightly above zero at the end of the first three months of the year, it certainly has become negative by now, Commerce Department and private economists said.
The emergence of the world's largest trading nation as a net debtor was caused by the deterioration of the country's trade in manufactured goods -- which has plummeted in the last five years -- and the worsening of the country's position in services, economists said.
Another indicator of manufacturing weakness is the use of manufacturing capacity, which dropped last month for the nation's factories, mines and utilities to 80.3 percent from 80.7 percent, the Federal Reserve Board reported yesterday.
Production at the nation's industries has declined in the past two months and has been weak for about a year, making it difficult for factories, mines and utilities to use available plant capacity.
In a separate report, the Commerce Department yesterday said that after-tax profits of manufacturing corporations averaged 4 cents on every dollar of sales in the first quarter, down 0.1 cent from the preceding quarter and a decline of 0.7 cent from the first quarter last year.
Becoming a net debtor nation makes the United States more vulnerable to international capital markets, because this country has come to rely more and more on borrowing money from foreigners to pay its debts. "If there was a run on the dollar tomorrow, we'd be hurt," said Rosen of the Institute for International Economics.
One of the significant aspects of becoming a net debtor is that foreign investors may become more wary of the dollar, reducing the demand for it. If that occurs before America's reliance on foreign borrowings diminishes, interest rates probably would rise to help attract foreign funds, economists said.
However, a lower dollar would help exports by making them cheaper relative to foreign goods.
The current account deficit for the first quarter was below the record $32.9 billion in the third quarter last year. It followed a deficit of $25.5 billion in the fourth quarter last year. The total current account deficit last year was $101.6 billion compared with $41.6 billion in 1983.
The merchandise trade deficit increased to $29.4 billion from $24.6 billion in the first quarter. Imports rose by $4.3 billion to $85.2 billion as nonpetroleum imports rebounded after a drop at the end of last year. Petroleum imports dropped 20 percent, Commerce said.
Exports declined by $500 million to $55.8 billion as agricultural exports, traditionally a strong sector, fell because of lower shipments of wheat and other grains. Other exports rose, particularly because of bunching of deliveries of aircraft and higher shipments of other capital equipment, Commerce said.
Net receipts for services dropped by $600 million to $2.6 billion. Receipts for other services increased by $700 million to $14.5 billion because of increased transfers under military sales contracts and larger travel and transportation receipts, Commerce said.