The Outlook: Recession May Be Trade Gap's Only Cure
WASHINGTON -- The summer's sobering trade numbers give new credence to the view that the nation's disturbing trade gap isn't likely to narrow significantly until there's a recession.</br></br>That's not to say a recession is desirable. The heavy debt burdens of U.S. companies and Third World nations, as well as the continued weakness of the banking system, raise fears that a recession now would quickly snowball into financial disaster.</br></br>Nor does a recession appear imminent. At the moment, most indicators point to an economy that is picking up, not sputtering out.</br></br>But the stubborn intransigence of the trade figures, despite Treasury Secretary James Baker's policy to devalue the dollar, suggests no other medicine may be strong enough. The monthly merchandise trade gap set new records in June and July, hitting $15.7 billion and then $16.5 billion. That rise partly reflects seasonal distortions in the statistics; but at best, the trade trend is flat.</br></br>"I've been looking for improvement and haven't seen it, and I'm beginning to get discouraged," says Massachusetts Institute of Technology economist Charles Kindleberger. "This may mean we have to have a recession" before the deficit numbers are reversed.