Challenge on Trade
There is no quick and easy remedy to the staggering trade deficit accumulated by the United States last year, because it is both an integral part of the nation’s resurgent prosperity and a part of more complex economic problems that have resisted efforts at correction.
History is repeating itself in a curious way. The nation has not known such a prolonged period of trade deficits, nine consecutive years, for 110 years--not since the era when heavy importation was essential to bringing the industrial revolution to America. Now, paradoxically, the United States is again in some ways like a distant colony--agricultural commodities a major export, manufactured goods a major import. In fact, foreign manufactured goods shipped to the United States increased so rapidly in 1984 that they constituted 22% of the American market.
Implicit in a $123.3-billion deficit are serious economic losses. Some people have calculated that it represents the loss of 2.5 million jobs. For that reason alone there will be a temptation to impose more protection, a tariff wall to contain the flood of imports. But protection will do more harm than good.
In the search for a remedy the nation must keep in mind the advantages as well as the disadvantages of trade deficits. The most important advantage is the effect of the imports on inflation--an important factor in the achievement of three consecutive years with an annual rate of inflation below 4%. The imports benefit millions of consumers, most Americans, and serve as a brake on pricing policies for American manufacturers who are competing in the domestic market. The imports also serve as an incentive for modernization, restructuring and improved productivity for American businesses, many of which had been allowed to languish when sheltered from active import competition.
But there is no question that American companies that are moving into world trade face serious handicaps for their exports. The high value of the dollar is the most critical handicap--a problem that is resistant to reform. This high dollar exchange value makes American exports relatively costly and foreign imports relatively cheap. Furthermore, inequities in trade have worked against American businesses as a number of other nations remain more protectionist than the United States.
Despite these handicaps, there was substantial growth last year in American exports--up 8.7% to a total of $217.9 billion, the third highest recorded, approaching the record set in 1981 of $237 billion. Preliminary export figures indicate remarkable growth, as much as 28% over the previous year, in such high-technology lines as computers. Competition remains tough even in high-technology goods, however.
The restoration of growth in exports, an area too long neglected by many American businesses, signals important employment opportunities. That export growth also justifies the firm policy of President Reagan to try to avoid protectionist measures while working to assure the fair access of American exports to foreign markets.
American business will remain handicapped in world trade so long as the dollar remains over-valued against other major currencies. The correction of that problem is complex. But there is a beginning point on which there is general agreement. The reduction of the disproportionate deficit in federal spending will be a step to an overall economic correction that would include a more equitable exchange, and thereby a more competitive situation for American exporters. In the meantime the trade deficit will almost certainly worsen--a challenge to American entrepreneurs that some have already met successfully.
