U.S. Trade Gap Soars to Record $12.2 Billion : Commerce: Mexico’s peso devaluation, strong U.S. demand for goods and services are cited by experts as causes.

A dramatic reversal in the trade pattern with Mexico combined with the strong U.S. economy and several seasonal and one-time events to send the nation’s trade deficit soaring to a record $12.2 billion for January, up 68% from December’s unusually small deficit.

Economists said the Dec. 20 devaluation of the Mexican peso, which made Mexican products cheaper in this country and U.S. products more expensive there, caused nearly a $1-billion swing in the flow of goods between the two countries from December to January.

Meanwhile, the expanding U.S. economy’s demand for goods and services is so strong that it can’t be met by domestic suppliers, officials said. That forces consumers and manufacturers to buy more foreign goods. Another factor was Canada’s weakened dollar, which has depressed U.S. exports to its No. 1 trading partner in recent months.

But economists said there had been no fundamental change in the nation’s trade picture and that the huge percentage increase from December was partly seasonal and was also inflated by a coincidental, $1 billion falloff in shipments of commercial aircraft.

Still, it was the highest monthly deficit since the Commerce Department revised its reporting procedure in 1992, and the news sent stocks, bonds and the dollar lower before generally recovering by Wednesday’s close.

The deficit included a drop of $3 billion in U.S. exports to $60.7 billion, led by declines in sales of aircraft, telecommunications equipment and semiconductors. Meanwhile, imports rose across the board by more than $2 billion to nearly $73 billion, led by consumer goods such as foreign-made toys, television sets and videocassette recorders.

January’s so-called merchandise trade deficit, which excludes services, was $16.3 billion, the highest ever and surpassing a mark of $15.9 billion set in December, 1985. The nation’s surplus in services shrank 12% to $4.96 billion from $5.64 billion in December.

Though partly a sign of U.S. economic health, the trade deficit is worrisome because it leads to a scarcity of capital and higher interest rates. The foreigners who hold increasing amounts of U.S. currency must be offered higher interest rates on U.S. bonds and other investments to entice them to reinvest those dollars here, said Salomon Brothers senior economist Susan Herring.

The most striking factor in the January trade gap was an $863 million trade deficit with Mexico, a dramatic turnaround from a slight U.S. trade surplus in December. Though bad news for U.S. exporters, the reversal is evidence that the peso devaluation is having the desired effect of reducing Mexico’s reliance on foreign products and services.

While U.S. exports to Mexico tumbled 9.8% to $3.85 billion, imports from Mexico jumped 11% in January to $4.7 billion, as the steep devaluation of the Mexican peso priced many American goods out of what has been America’s third biggest export market.

And it is likely to get a lot worse for U.S. producers. After running trade surpluses for the last four years, the United States could post a trade deficit with Mexico of up to $15 billion in 1995, said Jeffrey Schott, senior fellow at the Institute of International Economics.

Rudiger Dornbusch, economist at Massachusetts Institute of Technology, said, “There are three stories behind this: our recovery, Mexico’s depression and Canada’s all-time dollar low. The deficit is no surprise and there is also nothing madly to be alarmed about.”

Meanwhile, the much-discussed exports boost resulting from the U.S. dollar’s recent loss of value against major currencies, including the German mark and the Japanese yen, may take a year or two to materialize, Schott said.

U.S. exports of commercial aircraft, meanwhile, hit the lowest level since 1978. January aircraft exports were only $500 million, far below the $1.5 billion to $2 billion typical of most months, the government said.

A spokesman for Boeing, the largest U.S. producer of commercial jetliners for foreign airlines, said the lower January exports were not a sign of a dramatic fall-off in orders, but “just the luck of the draw on some countries taking delivery one month and then domestic customers taking deliveries the next month.”

A bright spot in Wednesday’s trade figures was that the U.S. trade deficit with Japan declined to $4.9 billion in January from $5.6 billion in December. However, the overall deficit with China rose to $2.7 billion from $2 billion the previous month.

The Japan falloff was partly explained by the Jan. 17 earthquake in the port city of Kobe, where shipping was brought to a halt.

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Ballooning Imbalance

Overall U.S. trade deficit in goods and services, in billions of dollars:

Jan. 1995: -$12.23

Source: Commerce Department