Trade Deficit Doubles to $123 Billion

U.S. trade with the rest of the world suffered an unprecedented $123.3-billion deficit last year when a soaring domestic economy and a dollar that stood at record highs against other currencies attracted $341.2 billion in imported goods into the country, the Commerce Department reported Wednesday.

The record trade deficit was almost double the $69.4-billion deficit of 1983, which had been the nation’s highest--and analysts in and out of government predicted an even greater trade imbalance this year.

Commerce Secretary Malcolm Baldrige noted in a statement that the surge of imports over exports peaked at an annual rate of $146 billion during the summer, dropped sharply during the last quarter of the year and reached its lowest level in December.

Worst Still to Come

Nevertheless, Baldrige concluded gloomily, along with many critics of the Reagan Administration, that worse trade news probably is still to come.

The sharp resumption in overall economic growth “and the continuing impact of the dollar’s rise during 1984 indicate higher imports in the months to come and another record trade deficit for 1985,” the commerce secretary said.

Virtually all the statistics released Wednesday suggested that increasing pressure for protection against imports is a certainty this year. Most economists estimate that a trade imbalance of the magnitude of 1984’s deficit cost the economy 2 percentage points in real growth last year because goods consumed in this country were manufactured abroad instead of here. It cost America jobs, as well--as many as 2.5 million, by some estimates.

At the same time, the flood of imports, in many cases cheaper than comparable American-made goods, helped hold the increase in the consumer price index to 4% in 1984, a third consecutive year of moderate inflation.

Record Japanese Surplus

Meanwhile, Japan’s Finance Ministry announced an overall record trade surplus Wednesday of $44.4 billion. The Commerce Department reported a record $36.8-billion U.S. trade deficit with Japan alone.

President Reagan last month sought to apply discreet pressure on Prime Minister Yasuhiro Nakasone to open Japanese markets to more U.S. imports, and the clamor for higher barriers to Japanese imports is bound to increase. But the Administration appears poised to end the voluntary quotas on Japanese auto exports to the United States when the fourth year of quotas ends in March.

In addition, the United States ran trade deficits of $20.4 billion with Canada, $11.1 billion with Taiwan and $8.7 billion with West Germany.

U.S. producers of automobiles, steel and other manufactured goods lost major sales to imports last year. Iron and steel imports rose 61.1% over 1983, foreign car imports were up 27.2% and electrical machinery imports increased 46.5%. Foreign oil costs rose 7% to $59.2 billion for the year because, even though the average cost of a barrel of oil declined, imports increased.

The record trade deficit was surprising to no one in view of the immense flood of imports during the early part of 1984, which had led many private economists to predict a trade imbalance of $130 billion or more for the year. And those same analysts Wednesday agreed with Baldrige’s assessment that the slowdown in imports during the last three months of the year was nothing to be complacent about.

“It must get worse in 1985, because the dollar has been reaching new highs,” said C. Fred Bergsten, a former Jimmy Carter Administration official who now heads the Institute for International Economics in Washington. “We still haven’t had the full effect of the rise in the dollar earlier last year. I expect a trade deficit of $150 billion this year . . . .”

Moreover, he cautioned, “That means a substantial, continual drag downwards on production and jobs.”

Donald H. Straszheim of Wharton Econometrics in Philadelphia agreed, saying: “I think the trend is deteriorating, not improving, and will continue to deteriorate all through 1985. The dollar is so strong that company after company, industry after industry, can’t keep up with foreign competition.”

The deficit “is very likely to be another $20 billion worse next year,” Straszheim warned. “I think this is an area we have to watch very carefully. The present economy looks like the best of all possible worlds: strong growth, low inflation and moderating interest rates. But it is a very unbalanced economy. There is an unprecedented budget deficit, and the trade imbalance is unprecedented as well. It looks fine on the surface--but, under the surface, it’s a very troubled situation.”