Will the Strategy Work?
President Reagan, who recently extolled the virtues of a strong dollar, suddenly has joined the ranks of interventionists in world monetary markets--hoping to drive the value of the dollar downward. The Administration joined with its Western industrial partners over the weekend in agreeing, if necessary, to sell massive amounts of American dollars to make the U.S. currency less attractive to investors and speculators. In relative terms it was a dramatic philosophic shift for the President, who previously opposed government actions to influence the value of currencies.
And on Monday the President announced further measures to force competing nations to abandon discriminatory trading practices against American products. He plans a strike force that would seek out and attack barriers to U.S. trade. And he has proposed a $300-million program of loan subsidies for American exporters, ostensibly to enable them to meet the challenge of foreign loan subsidies. In concert, the actions are designed to help correct the imbalance between American exports and foreign goods sold in this country.
The short-range goal of these moves is obvious and commendable: to head off protectionist legislation now moving through Congress. Such a preemptive strategy seems to have worked for Reagan on the issue of South African sanctions. It is less clear today whether it will succeed on the trade issue. Congressional protectionists vowed to carry on their imprudent fight and, if possible, override a presidential veto.
The President is correct when he says that protectionist legislation is likely to trigger a trade war that will do the nation far more harm than good. But he will need to be careful so that the campaign against foreign barriers to American exports and the loan subsidies for U.S. exports are not obstacles to the crucial task of negotiating a new round of world trade agreements to make all trade freer.
Some experts believe that the five-nation threat to dump dollars is an empty one and will have only a temporary depressing effect on the value of the dollar. That remains to be seen. But at least it is matched by promises of economic changes that, if implemented in Japan alone, would improve the U.S. trade imbalance.
There is more to correcting the trade deficit than the price of the dollar. American firms must become more competitive in their production and more aggressive in overseas marketing. As for the Administration, the best signal that it can send is to initiate strong action to reduce the federal budget deficit through new or increased taxes.
While discussing trade in his news conference last week, the President said that the budget deficit “is the threat to everything we hold dear.” But the budget deficit was almost ignored in his address on Monday.