Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, April 19, 1990 TAG: 9004190659
SECTION: NATIONAL/INTERNATIONAL PAGE: A/2 EDITION: EVENING
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
That downbeat assessment is likely to spark a heated debate in Congress, where critics are already accusing the administration of failing to do enough to promote America's competitive standing in the world.
The new report was to be the subject of a hearing today by the Senate Banking Committee.
In the annual outlook, released Wednesday by the Treasury Department, the administration said further trade improvement this year was likely to be "at best very modest," with the gains much smaller than recorded over the past two years. It said it could not rule out a "modest widening" of the deficit.
While this forecast is in line with the view of many private economists, it poses a threat to the optimistic economic assumptions underlying President Bush's 1991 budget.
A widening of the trade deficit would worsen the slump in manufacturing as companies found it harder to sell their products overseas. Further weakness in manufacturing could seriously depress overall economic growth.
The broadest measure of U.S. trade, the current account, posted a deficit of $105.9 billion in 1989. It had posted an all-time high of $143.7 billion in 1987. The current account measures both trade in merchandise and services, a category that primarily reflects investment flows between countries.
So far this year, the merchandise portion of the trade deficit has been on a roller coaster, surging to $9.32 billion in January, only to drop to $6.49 billion in February as oil imports retreated from a record high set the month before.
Many private economists look for America's oil dependence to deepen in coming months as domestic production slumps further. Another negative factor on the trade front is the recent strength of the U.S. dollar, especially against the Japanese yen.
A stronger dollar makes U.S. goods less competitive on overseas markets and makes foreign imports cheaper for American consumers.
The United States has often joined with other leading industrial countries in coordinated efforts to keep currency rates in line as a way of attacking trade imbalances.
The Group of Seven nations - the United States, Japan, West Germany, Britain, France, Canada and Italy - last met in Paris earlier this month. They promised then to continue their coordination efforts but rejected petitions by Japanese officials for stronger action to bolster the sagging yen.
In the trade assessment, the administration declared that "the yen's weakness is a matter of concern, with undesirable consequences for the global adjustment process."
Treasury Secretary Nicholas Brady gave a similar view in congressional testimony but did not offer any specific actions the administration was willing to take.
The U.S. trade deficit with Japan widened to $3.12 billion in February from $2.86 billion in January.
The administration's trade report said the dramatic political changes occurring in Eastern Europe had the potential of easing global trade imbalances.
The report said the unification of West and East Germany should help lower West Germany's large trade surpluses because the united country would have more demand for imported products. However, it said, the prime beneficiaries of this development were likely to be other countries in Europe, not the United States.
On another point, the report said Taiwan and South Korea had made progress in liberalizing their currency exchange-rate policies but that both nations need to make further progress.
The two countries had been cited in previous reports for manipulating their currencies in order to bolster their export sales, particularly with the United States, their primary foreign market.
by CNB