After rising for three months, the U.S. trade deficit edged down in August from a record high, the Commerce Department announced yesterday. Much of the improvement came from increased sales by U.S companies to East Asian countries that finally are recovering from financial crises that began two years ago.
Jumbo jets to Taiwan, telecommunications gear to South Korea, power generators to Japan--with deals like these, the United States has enjoyed a mini-boom in exports to the region. They have helped push the deficit down to $24.1 billion in August from July's figure of $24.9 billion.
"The trend is up right now for the Pacific Rim," said Don Kaiserman, senior director for international affairs at Periphonics Corp., a Bohemia, N.Y., company whose products include interactive voice response systems of the types people use to get their balances from banks.
Many of Periphonics' traditional markets in Southeast Asia went flat two years ago; in its June-August quarter, however, the company logged a 10 percent increase in business in that region. Among its recent deals: equipment for a customer service center for a mobile phone network that Nextel Communications Inc. of Reston is building in the Philippines.
In general, economists said, the Commerce Department's report suggests a smoothing out in the world economy after shocks that began in Thailand in the summer of 1997 and spread to many developing countries.
"The trade numbers show that the rest of the world is starting to recover," said Catherine L. Mann, an economist at the Institute for International Economics who has studied the deficit closely. She also said numbers for imports into the United States are lower than she expected, which may be a sign the U.S. economy is slowing slightly. That would bring it into closer sync with the world.
Whether the deficit will continue down in coming months was the question of the hour among trade-watchers yesterday. Of particular interest was a big rise in sales of commercial jets in August--Boeing Co. sold 13 747-400 cargo jets to Taiwan's China Airlines. If that sector shrinks back to normal levels in September, some economists say, the deficit could widen again.
Ed McKelvey, senior economist at Goldman Sachs Group Inc., is in that camp. "By no means do we feel we're at a point . . . where we'll see the trade deficit peak out," he said. He cites what he sees as still strong demand for foreign goods.
In recent decades, the United States has routinely bought more from the outside world than it sells, resulting in trade deficits. This year, those deficits have been pushed to new heights, as ailing Asian countries cut back their purchases from the United States, but the booming U.S. economy here kept right on sucking in imports.
In the 1980s, trade deficits were important political issues, with lawmakers blaming them for unemployment in their home districts. In the late '90s, with the U.S. economy on a multi-year roll and unemployment at records lows, it has been more a debating subject for academics and policymakers.
Some economists credit the deficit as a positive force in the world economy now, helping pull Asia out of its depths by giving factories there a market to sell to. But others worry that if it continues at the current bloated levels, foreign investors could begin to pull out of U.S. financial markets, triggering a drop in the value of the dollar.
That would make foreign products more expensive to people in the United States, which could contribute to inflation, which could upset the stock market. In short, it could mean an end to today's perfectly tuned economy.
So far, none of that has happened and Americans continue merrily to buy more and more from foreign countries. A generally strong dollar has facilitated those purchases. Yesterday's trade figures apparently made world currency dealers a bit less concerned that snowballing deficits might eventually bring down the dollar's value--they bid its value up 1.18 yen to 106.60 to the dollar. The dollar also advanced slightly against the euro.
Exports to Japan, which after extended recession has shown economic expansion in the last two quarters, were up by about $200 million in August on a non-seasonally adjusted basis. South Korea's purchases rose by about $400 million.
Exports to China grew only slightly (about $67 million), however, as imports from that country expanded by about $600 million. As a result, China's individual deficit with the United States grew to $6.9 billion, from $6.3 billion in July. "We're getting to the season where stuff is coming in for Christmas sales--a lot of toys from China," said Jim Glassman, chief U.S. economist at Chase Securities Inc.
The Chinese deficit surpassed Japan's figure of $6.4 billion, which had fallen from $6.8 billion the previous month.
CAPTION: Slight Retreat (This chart was not available)