graphic
News > International
Trade deficit seen rising
March 5, 1999: 3:47 p.m. ET

But is that good or bad for retailers, steel firms, computer makers? You?
graphic
graphic graphic
graphic
NEW YORK (CNNfn) - Nearly everyone expects the 1999 trade deficit to rise from last year's record, given more economic growth at home, weakness in Europe and Latin America and a tentative recovery at best in parts of Asia.
     Where people differ is on what, if anything, to do about it. Some industries, such as steel, timber and agriculture, are calling for more protection from low-priced imports.
     But while imports may cause pain in the industrial Midwest, they also feed Americans' hunger for low-priced VCRs, computers, sneakers and other goods, which helps hold down inflation, economists and trade experts say.
     And cheap steel from overseas may hurt steelworkers but it helps automakers, while computer manufacturers love the low-cost chips they buy overseas. So long as domestic demand remains strong, the trade deficit is not a major problem, the analysts said.
     "We've been able to have our cake and eat it too -- satisfy our demand for goods and services and at lower prices," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis. "The decline in import prices has been like a massive tax cut for U.S. consumers," he said, adding inflation would be "substantially higher" if not for higher imports.
    
Exporters suffer as higher gap seen

     But too big a deficit can hurt economic growth as exporters suffer. The deficit jumped 53 percent to a record $168.6 billion last year as exports fell for the first time in 13 years while imports grew 5 percent to $1.1 trillion. That reflected weak demand overseas for American goods while Japan, China, Brazil and other countries tried to export their way out of trouble.
     That broad pattern will continue in 1999, economists say, which could push the trade gap to $200 billion or higher this year.
     "It's a no-brainer" that the deficit will rise, said Stewart Hauser, whose firm, D. Hauser Inc., clears goods through customs for big importers and exporters.
     Companies that stand to benefit from the trade picture this year? Big importers such as Wal-Mart (WMT), computer retailer Best Buy (BBY) and computer makers and telecom firms that buy components and equipment overseas, analysts say.
     The companies most likely to get hurt include makers of heavy equipment such as Caterpillar (CAT) and Deere (DE), whose sales of tractors and other machines to Asia, Latin America and Europe could suffer. Caterpillar and Deere officials weren't available for comment.
     Barry Horowitz at Direct Line Cargo Management Services, a New Jersey firm that helps move freight to the United States, said the big importers who are his clients are bringing in goods like there's no tomorrow.
     "I've been in the shipping business for 30 years and I've never seen such euphoria in the industry before," he said, adding he cannot help but wonder where all the goods are going.
    
Europe, Latin America slowing

     While imports will remain strong, the outlook for exports is bleak. There may be a small improvement in Asia but "there'll be a slowdown in Europe and more deterioration in Latin America, which adds up to deterioration overall," said Donald Ratajczak, economist at Georgia State University.
     "We can talk about turning the corner in South Korea and Thailand but we're still plumbing the depths in Brazil," he said. Weakness in Brazil, the biggest economy in Latin America, is expected to slow growth across the region. Likewise lingering weakness in Japan could stunt any recovery in Asia.
     All of which has led some politicians and business officials to worry the United States is becoming the importer of last resort. But that's not a problem as long as the domestic economy is growing and investors abroad keeping pouring money into U.S. assets.
     "Fortunately the economy, the dollar and the financial markets are strong," said David DeRosa, adjunct professor of finance at the Yale School of Management. "Otherwise, this would hurt like hell. It does hurt like hell in certain industries."
     Steel makers already have won federal help in blocking steel from Japan and Brazil that U.S. companies say is "dumped," or sold at below-market prices, in the United States. Trade disputes like that one, or the "banana war" that led Washington to slap tariffs on $520 million of European goods, will continue, economists say.
    
Tariffs called dangerous

     What U.S. officials should avoid is broad-based tariffs that would slash imports, since this would weaken already weak trading partners, further eroding demand for American exports and most likely starting a vicious cycle of retaliation.
     Commerce Secretary William Daley recently expressed worries that the global financial crisis of 1998 "may become the trade crisis of 1999." But he said the administration is taking steps to avoid that, such as encouraging Japan and other nations to get their economies in order, moving against countries that unfairly dump goods here and pushing for more open markets abroad. It is also aiding U.S. exporters, especially small and mid-sized companies, he said in a speech in New York.
     That may be little comfort to the 5,900 people laid off by Levi Strauss last month as the jeans maker, struggling with the rising tide of imports, said it would close 11 of its 22 manufacturing plants in North America.
     But despite the short-term pain, economists say lawmakers should avoid a rush to protectionism. They note that the Smoot-Hawley Act of 1930, which built trade walls around the United States the year after the stock market crash, helped turn 1930's recession into the 1930s' Great Depression.
     "The chorus of calls for protectionism will grow even louder" this year, said Wells Fargo's Sohn, adding the U.S. should tolerate the deficits as a "sort of Marshall Plan for our friends overseas. We need to resist any temptation to build tariff walls because that will make everybody worse off," he said.
     -- by staff writer Steven Radwell Back to top

  RELATED STORIES

Trade gap hits record in 1998 - Feb. 19, 1999

  RELATED SITES

Commerce Dept.

Trade Center


Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney




graphic

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.