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One More Reason The U.S. Trade Gap Will Get Wider


Economic Trends

ONE MORE REASON THE U.S. TRADE GAP WILL GET WIDER

America's trade deficit fell in March, but it still seems headed higher--if only for cyclical reasons. As long as the U.S. expansion continues and foreign economies remain weak, America's appetite for imports will grow, and demand for its exports will stay depressed.

Economist Edward F. McKelvey of Goldman, Sachs & Co. underscores another element in the trade outlook. He notes that the prices of a broad range of imports have been unusually subdued for years. On average, from 1987 to 1993, import prices have risen 1.5 percentage points less than prices of domestically produced goods and services. In fact, over the past year nonoil import prices have been edging up at a mere 1% annual rate.

These trends, says McKelvey, suggest that rising imports will continue to swell the trade deficit as long as domestic demand remains strong. And bouts of dollar weakness won't affect U.S. inflation until foreign businesses raise prices a lot more aggressively.GENE KORETZ


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