It's easy to explain the broad smiles at the White House these days. The dramatic new decline in the U.S. trade deficit gives President Reagan more ammunition to use in vetoing the protectionist trade bill on his desk.

The unexpectedly large decline of $4 billion puts the trade deficit at the lowest level in three years. This development is not just a statistical fluke; it represents a more robust economy. And that conclusion is not just based on partisan rhetoric from the Oval Office; plenty of private economists concur.Likewise, plenty of other Americans have reason to be pleased, too. A narrowing of the trade deficit is a sign of strength for the economy because it means more jobs in the manufacturing sector. Also, smaller trade deficits usually translate into less downward pressure on the value of the dollar in foreign exchanges.

Even so, there are limits to how much satisfaction Americans can take from what has happened to the trade deficit. At $9.7 billion in March, the deficit is still far too big. Though America's trade problems are improving, we're not out of the woods yet - and it's likely to take a long time to get out.

For one thing, the 23 percent jump in U.S. exports that reduced the deficit was accompanied by a 3.7 percent increase in U.S. imports. Clearly, Americans still have a voracious appetite for foreign products.

For another, the U.S. economy could overheat from the surge of production of export goods, intensifying inflationary pressures that erode the value of fixed incomes.

In short, America's trade problems are far from over despite the sharp decline in the deficit. But there's also a lot less excuse for trade legislation that would hurt America's ability to compete in foreign markets.