WASHINGTON -- President Reagan contradicted his own administration on whether the United States is now a debtor nation, while trying to explain the complicated topic of international trade.
Commerce Secretary Malcolm Baldrige in June said it appeared the United States had become a debtor nation for the first time since 1914. Tuesday, the Commerce Department confirmed that and announced the U.S. balance of payments was in the red by $31.8 billion -- meaning American industries now owe foreigners more than they owe the United States.
The figure, announced with little fanfare, is more than enough to plunge the country into debtor status for the first time since World War I.
'I think this is a false impression that's been given about that a trade imbalance means debtor nation,' Reagan said at a nationally broadcast news conference Tuesday night.
'This isn't our government expending more on imports than it is giving back in exports. ... These are the people of our country, the businesses and the corporations. ... the American people are buying more than the American people are selling.'
Reagan appeared to be defining debtor nation at the same time he was rejecting the term. A White House spokesman later said Reagan was attempting to point out differences between the United States and other countries, such as Mexico and Brazil, that have amassed much of their debt through government rather than private channels.
Spokesman Larry Speakes said the president meant to stress that, 'The United States is not in the same situation as many Third World countries because a large portion of the debt is privately incurred. Our current debt situation is due primarily to the strength of the U.S. economy.'
Reagan also said the trade deficit figures 'have some failings' and 'don't include in exports anything we're getting back in services.'
However, Monday's figures did include services -- a small $4.5 billion surplus in the second quarter that did little to offset the enormous deficit in the trade of merchandise.
Reagan insisted that another thing 'we don't count' is foreign investment in the United States. But that is exactly what is counted in determining the balance of payments figures.
The president said foreign capital is coming into the United States 'because we are the best and safest investment in the world.'
Perhaps more attractive is the high rate of interest America has to offer -- rates kept high, economists say, because of the large U.S. budget deficit.
This round-robin problem means foreign countries are actually helping finance the nearly $200 billion U.S. budget deficit.
Reagan cautioned against hasty protectionist legislation to try to correct the trade imbalance. He noted the Smoot-Hawley tariff, enacted in the 1930s, sparked retaliation from other countries and is seen in retrospect as a major contributor to the Great Depression.
