A New Deficit Shock?

The U.S. balance of trade is on its way to a huge deficit of more than $4 billion this year--double last year's worrisome gap between exports and imports--in part because of Japan's modern closed-door policy. This grim analysis was made last week by Harald Malmgren, a senior member of a U.S. trade mission that met with officials in Japan to seek a way to increase American exports. The need for some kind of action soon was starkly emphasized by a Commerce Department report that the trade deficit in this year's first half was a record $3.3 billion. Despite repeated promises, Japan has moved slowly to ease the trade imbalance by lowering its barriers against imports.

Extra Money. In last week's talks, the Americans were disappointed. The Japanese government agreed to buy only some $26 million worth of U.S. grain, but it might soon increase advance purchases of American uranium, soybeans and wheat. This means that the Japanese would stockpile more than their country needs now and buy less later. The move would at least temporarily reduce Japan's $3.8 billion trade surplus with the U.S., but it would do nothing to alter its remaining import restrictions.

Though the yen was revalued in December, many Japanese firms absorbed much of the consequent price increase for their products abroad and continued to boost their exports. In addition, the expected price decline for American goods in Japan has not materialized, and some items have become even more expensive. Reason: Japanese distributors have maintained pre-revaluation prices on many U.S. goods and pocketed the extra money. Malmgren warned that Japan's failure to help ease the deficit quickly could lead the U.S. Congress to pass more protectionist laws.

Improving the U.S. trade deficit is important for clearing up the overall problem of the American balance of payments, which includes loans, investments and other capital movements as well as merchandise trade. In the second quarter of 1972, according to Alan Greenspan, a member of TIME'S Board of Economists, the U.S. official settlements balance was headed for its first surplus in more than two years. Then Britain floated the pound, inciting fears of a monetary crisis and a new dollar devaluation. Multinational corporations and speculators rushed to trade their dollars for stronger European currencies. As a result, Greenspan estimates, the U.S. had a deficit of $1.3 billion in the quarter. During the first 31 weeks of July, Greenspan reckons, the U.S. ran a deficit of $4.1 billion.

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