Economic Report President

Chart 6-5 Terms of TradeImport prices have fallen more than export prices since the onset of the Asiancrisis, leading to an improvement in the terms of trade.Index (fourth quarter 1983 = 100)140130Price ofimports120110100Price of exports9080Terms oftrade701983 1985 1987 1989 1991 1993 1995 1997Source: Department of Labor (Bureau of Labor Statistics).THE TRADE AND CURRENT ACCOUNT DEFICITSThe Short-Term Behavior of the Trade ImbalanceIn 1998, faster U.S. growth relative to growth in our trading partnerscombined with the continued appreciation of the dollar to exert apowerful impact on the U.S. trade balance. The deficit in trade in goodsand services rose substantially. Based on data for the first 11 months ofthe year, it now appears that the deficit for 1998 will be in the neighborhoodof $170 billion, up from $110 billion in 1997. Compared with1997, it appears that exports of goods and services in 1998 will bedown about 1 percent, whereas imports of goods and services will be upabout 5 percent. Relative to past trends, the decline in exports is by farthe more striking of the two figures.A large fraction of the increase in the dollar value of the trade deficitis related to the decline in exports to Asia; the contribution of importgrowth to the increased nominal value of the deficit has been quitemodest thus far. The decline in exports to six key East Asian countries(Indonesia, Japan, Korea, Malaysia, the Philippines, and Thailand),measured at an annual rate, was running at $25 billion to $30 billionin the fall of 1998. Korea alone accounted for almost two-fifths of thedecline. Imports from these countries have also risen, continuing anupward trend that has persisted for several years.255