U.S. Trade Deficit Reached Record $160.7 Billion in ’87 : Country Again World’s Largest Debtor Nation

The deficit in the broadest measure of U.S. foreign trade surged to a record $160.7 billion in 1987 with the additional red ink pushing the country further into the hole as the world’s largest debtor nation, the government reported today.

The Commerce Department said that the current account deficit last year was 13.7% higher than the previous record of $141.4 billion set in 1986 despite the fact that the deficit for the final three months of the year narrowed slightly.

The current account covers not only the flow of merchandise across the U.S. border but also the flow of services, primarily investment earnings, between countries.

While the United States has run deficits in merchandise trade for 16 of the last 17 years, the current account was in surplus as recently as 1981 as Americans’ earnings on overseas investments were enough to offset the merchandise deficits.

Advantage Has Shifted

But since that time Americans have handed over billions of dollars to foreigners in exchange for imported goods. With all that wealth now in foreign hands, the perennial advantage the United States has had in investments has shifted, and America has become the world’s largest debtor country.

Being a net debtor means that foreigners now own more in U.S. investments than Americans hold in foreign investments. America was last a net debtor in 1914. It regained that status in 1985 with a foreign debt of $111.9 billion. That debt grew to $263.6 billion at the end of 1986.

Economists said that with today’s new figures the total debt has probably topped $400 billion, although the government’s official accounting will not be made until June.

Today’s report showed that the bulk of the 1987 trade deficit came from a $159.2-billion imbalance in merchandise trade. Adding to that deficit were payments of $13.5 billion in foreign aid and other government transfer payments such as Social Security paid to retirees living overseas.

That figure was reduced slightly by a surplus of $12 billion in the services category. While foreigners now own more in U.S. investments, the payments still showed a slight positive because many of the older U.S. investments are earning a higher rate of return.

However, the services surplus was down from $18.6 billion in 1986 and has been dwindling steadily.

More Interest Abroad

Economists expect the services surplus to be wiped out altogether in future years as more and more American dollars are paid to foreigners to meet interest payments on the U.S. debt.

For the fourth quarter, the current account deficit shrank slightly to $39 billion, down from $43.4 billion in the third quarter. This improvement reflected a slightly smaller merchandise trade deficit and a resumption of surpluses in the services category. In the third quarter, the United States had run a deficit with the rest of the world in investment earnings for the first time in 29 years.

Democratic presidential candidates have been attacking the Reagan Administration, charging that the country’s new status as the world’s biggest debtor is directly attributable to the failure of the Administration to come to grips with huge federal budget deficits.