Trade Deficit At 7-Year High Of $111 Billion Gap With Mexico Is Largest Ever

The U.S. trade deficit ballooned to $111.04 billion in 1995, the worst performance in seven years, the Commerce Department reported Wednesday, underscoring job anxieties that are resounding from the factory floor to the presidential campaign trail.

Despite a marked, overall improvement late in the year - highlighted by long-awaited trade gains with Japan and a general pattern of export growth - the U.S. trade balance deteriorated with China and Mexico, where the trade gap hit an all-time high.

The report could give ammunition to opponents of the North American Free Trade Agreement, although economists warn that it’s misleading and unfair to judge the deal on the basis of one year’s results.

Clinton’s chief antagonist on trade, Republican presidential candidate Pat Buchanan, said alarm is warranted. “You know what that represents. We just lost 2.2 million jobs last year,” he said while campaigning in South Carolina Wednesday. Buchanan contends that free-trade agreements negotiated by President Clinton have seriously damaged the interests of U.S. workers by opening the country to a flood of cheap imports.

The U.S. trade surplus with Mexico in 1994 turned into a 1995 deficit of $15.4 billion. Economists say that largely reflects Mexico’s severe downturn, following the peso crash.

Analysts disputed Buchanan’s claim that jobs were lost because of imports. “There has been no net job loss in the U.S. economy; in fact, we’re gaining jobs,” said Jeffrey Schott, an economist with the Institute for International Economics.

The trade gap also widened with Canada to $18.2 billion, the biggest deficit there since 1986.

The new government report showed that: The whopping annual deficit obscured an underlying trend of improvement that became obvious around August.

Substantial gains in U.S. exports reflect favorably on U.S. competitiveness, economists agree, but they were not sufficient to offset the nation’s vast appetite for imports and the unusually large trade gap.

The United States last year bought far more goods from its North American neighbors than it sold to them, although the effect that NAFTA has had on U.S. jobs remains a source of argument.

“Exports are rising but manufacturing jobs aren’t,” said Thea Lee, an economist and trade specialist at the Economic Policy Institute, a liberal think-tank in Washington. “You have to say that some jobs are being displaced by imports.”

Progress in narrowing the trade gap seemed to stall in December, as the deficit widened a bit to $6.78 billion, slightly up from November. The 1995 deficit, which was 4.5 percent larger than the prior year, would have been substantially worse, except for a trade surplus in services, such as tourism, transportation, royalties and license fees.

Administration officials said Wednesday that export gains of 14.4 percent for the year provided a much-needed boost to economic growth and would help narrow the trade gap in 1996. The December monthly deficit of $6.78 billion, although up slightly from November, reflected a pronounced trend downward from earlier in the year, when the monthly deficit figures were exceeding $11 billion.

Administration officials, along with many private economists, maintain that jobs gained through U.S. exports greatly exceed the number lost. For example, the Office of the U.S. Trade Representative said Wednesday that export growth created over half a million new jobs last year.

But others, who believe that trade agreements have not adequately protected American workers from losing their jobs, see at least some vindication in the new trade-gap data.

“Half a million jobs created last year - where are they?” asked Lee of the Economic Policy Institute.

Overall, she maintained, the total of U.S. jobs either lost or not created due to competition from imports could be almost 2.5 million.

Wednesday’s trade report showed that the U.S. trade deficit with Japan shrunk for the first time in four years, narrowing by 9.7 percent to $59.28 billion. The pattern remained apparent in December, with the monthly deficit sinking to $3.47 billion from $4.13 billion the month before.

At the same time, the U.S. trade gap with China widened dramatically - up 14.6 percent to $33.81 billion.