Terrorist attacks help narrow U.S. trade deficit by record amount

By MARTIN CRUTSINGER
AP Economics Writer

WASHINGTON – The U.S. trade deficit narrowed by a record amount in September, but for all the wrong reasons – growing economic weakness at home and huge insurance payments as a result of the Sept. 11 terrorist attacks.

The Commerce Department reported Tuesday that the trade gap shrank by 31 percent to $18.7 billion, the smallest imbalance in 21/2 years.

The decline in the deficit reflected a huge 14 percent drop in imports of goods and services, which offset an 8.5 percent decline in U.S. exports.

The big drop in imports occurred primarily because of an estimated $11 billion in claims foreign insurance firms will pay for the attacks on the World Trade Center and the Pentagon.

In the government's accounting system, those payments worked to lower service imports and were treated as if all the payments were made in one month.

Another factor narrowing the deficit for September was a continued decline in U.S. exports, which have been battered all year by global weakness.

Analysts stressed that the $18.7 billion deficit for September was a one-time event. They forecast that going forward the trade deficit would bounce back to around the $28 billion to $30 billion monthly levels seen in recent months, reflecting a return to more normal import levels and continued export weakness.

"The weakness of the U.S. economy is putting a world of hurt on the rest of the economies around the globe," said Ken Mayland, head of ClearView Economics in Ohio.

Jerry Jasinowski, president of the National Association of Manufacturers, blamed part of the export weakness on a strong dollar, which makes U.S. goods more expensive in overseas markets.

"A continued overvalued dollar and weak growth abroad will likely keep manufactured exports, which are down by 18 percent from a year ago, from making any rebound for the rest of the year," he said.

Commerce Secretary Don Evans said the weakness in exports pointed to the need for Congress to quickly pass legislation President Bush needs to negotiate new trade agreements to lower export barriers. A showdown vote on trade promotion authority has been scheduled for Dec. 6 in the House.

"Today's numbers make it clearer than ever that U.S. leadership in the global marketplace is crucial for our economic vitality," Evans said.

However, opponents of the trade legislation, also known as fast track, said that the still-huge trade deficits demonstrated that the policies of the Clinton and Bush administrations to open foreign markets have failed, an argument likely to gain adherents in a slumping economy.

"The United States is losing ground in the manufacturing sector," said Rep. Sherrod Brown, D-Ohio. "Since the beginning of this year, we have lost more than 1 million manufacturing jobs."

The $18.7 billion deficit in September reflected the smallest monthly imbalance since an $18.4 billion shortfall in March 1999. For the year so far, the trade deficit is running at an annual rate of $345 billion, down from the all-time record of $375.7 billion set in 2000.

The September improvement came despite the fact that the deficit in just goods rose by 5.4 percent to $35.9 billion, the largest goods deficit since April.

For goods and services, total exports fell by 8.5 percent to $77.3 billion, the lowest level for exports since March 1999. Exports of telecommunications equipment, autos, industrial machinery, computers and commercial aircraft were all down.

Imports of goods and services in September dropped an even sharper 14 percent to $95.99 billion, also the lowest level since March 1999. Imports have fallen for six consecutive months. Imports of oil, foreign cars, computers and telecommunications equipment all fell.

For individual countries, the deficit with China rose by 5 percent to $8.5 billion, the highest level in nearly a year. The deficit with Japan was essentially unchanged at $5.4 billion as imports from that country fell to their lowest level in more than two years.

The September deficit with Canada fell by 4.1 percent to $4.3 billion, the lowest level since May 2000.

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On the Net:

Monthly trade report: www.census.gov/foreign-trade/www/

AP-WS-11-20-01 2005EST