Trade Imbalance Has Hit Bottom, Business Leaders Say
The chairmen of some of the nation’s largest companies have become openly confident that the massive U.S. trade deficit has hit bottom and is now improving, but they fear that congressional zeal to fix the problem will only make it worse.
“The trade turnaround is forecast to have occurred already,” Citicorp Chairman John W. Reed said in presenting an economic forecast Friday to fellow corporate chairmen at the annual spring meeting of the Business Council here in the Virginia mountains. Members of the council were virtually unanimous in their acceptance of the report.
“The deficit has reached bottom and in real terms it clearly has” begun to improve, Reed told reporters at a briefing.
Marginal Gains Seen
In nominal terms, the council predicted, the improvement will be only marginal this year, because the weakening dollar raises the price of imports and lowers the price of exports.
By the end of 1988, the council forecast puts the deficit on current account, the broadest measure of U.S. transactions with the rest of the world, at $123 billion, compared to $140 billion last year.
As a share of gross national product, this means that the deficit will have shrunk from 3.4% of GNP in 1986 to about 2.5% in 1988. That would represent a significant improvement.
Indeed, in the formal report presented to council members Friday, the turnaround in volume terms, with the recent effect of the falling dollar removed from the value of higher-priced imports, was called “significant” and “impressive.”
Fear Protectionism
But many of the chairmen of large companies represented here--some of them, like IBM, General Electric, Pfizer and TRW, are exporters of high-technology goods, while others, like American Express, CIGNA, Prudential, Citicorp and Chase Manhattan Bank, are exporters of services--fear that the current protectionist drive in Congress will hurt them directly.
Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) met Friday with council members to reassure them that the trade bill his committee plans to bring to the Senate floor contains no harsh measures, such as the controversial Gephardt amendment in the House bill. That measure, sponsored by Rep. Richard A. Gephardt (D-Mo.), mandates punitive tariffs against countries with large surpluses in their trade with the United States if those surpluses are not reduced.
Bentsen Opposed
Such a provision “would certainly not have passed my committee,” Bentsen told reporters Friday. “I’ll oppose it on the floor of the Senate.”
Taking a position similar to that of House Ways and Means Chairman Dan Rostenkowski (D-Ill.), who almost defeated the Gephardt amendment in a hotly contested 218-214 vote on the House floor two weeks ago, Bentsen said: “I’m looking for something to become law, not a political issue . . . for 1988.” (Gephardt is seeking the Democratic presidential nomination.)
“The problem is too serious to be put off (until then),” Bentsen added. “If Gephardt is in the bill, the President will veto it. And judging by the four-vote margin in the House, there’s no way to pass it over the President’s veto.”
Secretary of State George P. Shultz, another guest of the Business Council this weekend, told reporters that he was gratified to hear Bentsen assure council members that he will work to defeat the Gephardt provisions.
“It’s the wrong thing to do,” Shultz said. “It would be a great mistake to believe that we can solve the problem by restricting trade.”
Surpluses Tied to Tariffs
Under Gephardt’s plan, countries with large trade surpluses with this country that are deemed to engage in unfair trading practices, would face mandatory tariff or quota penalties if they failed to reduce their surpluses by 10% a year for four years.
