Trade Deficit With Japan Rattles Markets Widening Gap Gives Investors A Reason To Dump Stocks

The U.S. trade deficit narrowed slightly but the gap with Japan soared and the imbalance with Mexico set an all-time high. Stock prices broke a string of record highs and plunged following the news Thursday.

The Clinton administration, already threatening huge sanctions against Japan, said the new figures only stiffened its resolve to break Japanese trade barriers.

The trade report Thursday from the Commerce Department showed that the overall deficit in goods and services narrowed 0.4 percent in March to a seasonally adjusted $9.12 billion, compared to February’s deficit of $9.15 billion.

Investors, who had been looking for even more of an improvement, used the report as reason to dump stocks and take profits. The Dow Jones industrial average fell 81.96 points to close at 4,340.46, according to preliminary calculations, its biggest one-day drop in six months.

The trade report renewed fears that the U.S. economy is slowing and corporate earnings will decline.

But analysts said the decline should not be blamed entirely on the trade deficit. A correction was overdue in the stock market, which has increased sharply since the first of the year.

The deficit with Japan shot up 30 percent to $6.14 billion, close to the alltime high of $6.7 billion set last October. Japanese shipments to the United States rose by 21 percent with one-fourth of that increase coming from Japanese autos and parts.

For the first three months of this year, Japan has shipped $10.4 billion in autos and parts to the United States while America has sold just $1 billion in auto exports to Japan. America’s overall deficit with Japan hit a record $66 billion last year, with nearly 60 percent of that in autos.

To narrow this gap, the Clinton administration has been demanding that Japan boost its purchases of U.S.-made autos and parts and on Tuesday targeted 13 of Japan’s most popular luxury autos for punitive tariffs of 100 percent if no market-opening agreement is reached in the next month.

U.S. Trade Representative Mickey Kantor called the big jump in Japan’s March deficit curious given the fact that the dollar has weakened in value by nearly 20 percent against the yen this year. That weakness should make Japanese goods more expensive and thus less attractive to U.S. consumers.

America’s trade deficit with Mexico surged 36 percent in March to a record $1.71 billion as economic turmoil continued to wipe out what had been one of America’s few consistent trade surpluses.