The Marketplace Report: Record U.S. Trade Deficit

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MADELEINE BRAND, host:

Back now with DAY TO DAY. I'm Madeleine Brand.

The US trade deficit jumped by more than 11 percent in September. That was much more than expected and means that the trade deficit is on track to be the largest ever. Joining us is John Dimsdale from "Marketplace's" Washington bureau.

And, John, I would imagine the September figures were caused, at least in part, by the high oil prices.

JOHN DIMSDALE reporting:

That's certainly part of it but not all. You know, it seems the American appetite for foreign TVs, electronics, clothing, cars, food just knows no bounds. That being said, oil and other petroleum products do account for about 42 percent of the steady rise in the US trade deficit since 2001.

BRAND: And oil prices are now coming down after the record highs, after the hurricanes. So should that help the trade deficit?

DIMSDALE: It should. It should make the trade deficit look a little better, at least over the next couple months. But there are other trends that are running counter to oil prices. For example, the value of the dollar has been strengthening recently, and that makes foreign products even cheaper, more attractive, for US consumers. Also, American products are not selling well overseas. Exports in September were down $3 billion from the month before. Now that's partly due to a drop in aircraft shipments because of a machinist strike at Boeing, but the demand for American-made goods just continues to slide.

BRAND: And, John, the trade deficit has been rising steadily since the beginning of this decade, for the last few years, breaking new records year and year, and economists keep saying that this is unsustainable. So how long can this go on?

DIMSDALE: Well, I put that very question to C. Fred Bergsten. He's one of this city's most prominent trade experts at the Institute for International Economics. He says the trade imbalance eventually will make the value of America's currency drop. The question for him is: How fast?

Mr. C. FRED BERGSTEN (Institute for International Economics): There is an inevitable large decline of the dollar coming. Even if it's the smoothest and most gradual moves, it still means important upward pressure on inflation and interest rates. If it were to go into a free fall and the total inevitable decline of 20, 25 percent happened in a few months or even a couple quarters, then it could be much nastier then. Interest rates could go to double digits, for example.

DIMSDALE: And that increases borrowing costs and would slow economic growth. And most worrisome for free-trade experts like Fred Bergsten, it generates trade protectionist pressures in Congress. There are already moves to require more tariffs and other barriers on China to induce the Chinese to let their currency rise in value against the dollar. Earlier this week we saw China and the US sign a deal that will limit cheap clothing imports from China. That reflects more of this pressure.

Coming up on "Marketplace," we're looking into the finances of the crumbling newspaper market. And should the Tribune Company sell their flagship Chicago Tribune?

BRAND: John Dimsdale of public radio's daily business show "Marketplace." And "Marketplace" is produced by American Public Media.

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