Trade Gap Swells To $114 Billion Toy, Shoe Imports Help Push Deficit With China To A Record

America’s foreign trade deficit climbed to $114.2 billion in 1996, the worst showing in eight years, as a flood of toy and shoe imports helped push the deficit with China to an all-time high.

The Clinton administration insisted Wednesday that 1997 would be better, but private economists said that they saw no quick relief for the nation’s biggest economic headache.

The trade news wasn’t all bad. The deficit with Japan narrowed to $47.7 billion, the smallest imbalance since 1991. But the deficits with all other major trading partners worsened significantly.

Commerce Secretary William Daley pointed to record U.S. exports in 1996 as proof that the administration’s market-opening trade policies were working. He predicted that the overall deficit, which he blamed on sluggish economic growth overseas, would finally start to narrow in 1997 after widening for five years.

But many private economists forecast further deterioration in America’s trade performance in 1997. Critics of administration policies have blamed the rising deficits for the loss of millions of American jobs.

“The trade deficit is going to be a lot worse in 1997 because everything is pushing in the wrong direction,” said Lawrence Chimerine, chief economist at the Economic Strategy Institute, a Washington think tank. “Domestic demand is still very sluggish in most of Europe and Japan, the dollar is way overvalued, especially against the yen, and oil imports keep rising because of falling domestic production.”

Chimerine predicted the deficit in goods and services could climb to between $125 billion and $130 billion this year.

After narrowing in October and November, the December deficit jumped a bigger-than-expected 30 percent to $10.3 billion.

“The combination of a strong dollar and weak economies overseas will keep the deficit around the December level for much of 1997,” predicted Michael Fenollosa, economist at John Hancock in Boston.

America’s imbalance with China swelled by 17 percent last year to a record $39.5 billion, the highest trade gap the United States has ever had with any country other than Japan. Chinese imports to the United States were up 13 percent while exports to China grew by only 1.9 percent.

Many trade experts believe 1997 will be the year that the deficit with China becomes larger than the gap with Japan, traditional site of America’s biggest trade problems. They said the death Wednesday of Deng Xiaoping would have little impact on trade frictions between the United States and China.

The deficit with Japan shrank for a second straight year after hitting an all-time high of $65.7 billion in 1994. While the administration credited its aggressive efforts to open the Japanese market, analysts predicted much of the gain would be wiped out this year as the stronger dollar makes Japanese cars more attractive to Americans and U.S. exports more expensive for Japanese consumers.

The deficit with Mexico hit an alltime high of $16.2 billion in 1996 and the imbalance with Canada rose to $22.8 billion, the worst showing since 1986.

The administration blamed much of the deterioration on Mexico’s currency crisis, which would have occurred with or without the new North American Free Trade Agreement. But critics blame NAFTA for the loss of 420,000 jobs since 1993.

America’s trade deficit stood at $38.8 billion in 1992 and has risen every year that President Clinton has been in office.