ASIAN DEVALUATIONS ADD SHARPLY TO UNITED STATES TRADE DEFICIT

The Asian financial crisis has led to sizable currency changes that
will have major effects on trade balances around the world. They will
add $40-50 billion to the US trade deficit in dollar terms and
considerably more in real (volume) terms. Much of the increase will
come in US trade with Japan and Korea (Table 1). Western Europe will
experience an even larger deterioration in its trade balance with Asia.

The impact of the crisis on the United States is felt differentially
throughout the economy. The traded-goods sector declines, as just
noted. But output of non-traded goods, such as construction and real
estate, expand because of lower inflation and lower interest rates. The
"housing and construction" sector, for example, expands by 0.7-0.8
percent due to the Asian crisis (Table 2). The entire services sector
expands by 0.4 percent.

Table 1 Changes in trade balances due to Asian devaluationsa (billions
of dollars)

Global of which, with: Japan South Korea China

United States -43 -14 -13 0
Western Europe -55 -11 -8 -1
South Korea 47 9 - 4
Thailand 34 8 0 2
Japan 19 - -9 5

Note: Based on table 2.5 on page 42, which reports results for 12
additional countries and regions.
a. Assumes no Chinese devaluation.
Table 2 Impact of Asian devaluations on US trade and sectoral
production
(with and without 6 percent Chinese devaluation, in percentages)

Change in exports Change in imports Change in production

Without China With China Without China With China Without China With
China

Agriculture -5.4 -6.5 -0.4 -0.6 -0.9 -1.1
Processed food -4.3 -5.1 0.7 0.8 0.0 0.0
Forestry and fishery -7.3 -8.2 -2.4 -3.3 -1.4 -1.7
Mining -5.1 -5.6 0.5 0.6 -0.5 -0.6
Energy -3.5 -3.6 1.3 1.5 -0.0 0.0
Textile and apparel -3.6 -4.8 0.9 1.8 -0.6 -1.0
Light manufactures -6.0 -6.9 1.2 1.5 -0.8 -1.2
Intermediate goods -3.2 -3.6 0.6 0.8 -0.7 -0.8
Motor vehicles and parts -2.9 -2.9 3.8 3.8 -1.2 -1.1
Other transportation equipment -8.7 -9.2 6.0 6.9 -1.1 -1.2
Electronics -4.6 -4.9 2.4 2.6 -2.4 -2.5
Machinery -4.9 -5.1 1.1 1.3 -2.6 -2.8
Housing and construction -5.9 -5.8 1.4 1.6 0.7 0.8
Services -3.9 -4.0 1.0 1.2 0.4 0.4
Total -4.4 -4.7 1.5 1.7 -0.1 -0.1



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Demetre A Constantinide

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