Clue to Trade Deficit : Tapering Off the Craving for Imports
When Bill Yerkes set out to find a laptop computer for his wife recently, he wanted to buy American. Most of all, he did not want to buy anything from Toshiba, the Japanese company that a few years ago sold sophisticated submarine technology to the Soviet Union.
So what did he buy? A Toshiba.
“I spent 3 1/2 weeks trying to find an American computer,” the 54-year-old engineer recalled. “But in the end we bought the damn Toshiba computer. It was the best price, and it was about three pounds lighter than the Hewlett Packard. She’s had it about three months and she loves it.”
In a day when the weak-valued dollar is forcing up import prices, business executives hope the phrase “made in the U.S.A.” will regain the glamour it lost under withering foreign competition in recent years. And there are signs that Americans’ ardor for imports is starting to wane as their price tags rise. Such a trend could be of far-reaching importance, helping to erase a U.S. trade deficit of $171.2 billion last year.
Doubts Linger
But interviews with consumers and industry analysts suggest that many Americans are forgoing imports only reluctantly. Doubts linger about the quality of U.S. workmanship and design, particularly in automobiles. And, as Yerkes’ experience shows, the desire to buy American can be offset by a wish to buy the most appealing product, whatever its birthplace.
“There’s a case where I didn’t want to buy something from the (foreign) company,” Yerkes, a former Los Angeles resident who now lives in Seattle, recalled of his computer purchase. “But in examining the product and the competition, the Toshiba was a very superior design.”
Multiply that decision by millions of others made by Americans, and you come up with a clue to this country’s trade problems.
Mammoth Imbalance
In 1987, Americans bought $424 billion worth of cars, watches, computers, audio equipment, clothing and other goods from overseas--while managing to sell $252.8 billion worth abroad, according to the Commerce Department. The result was a mammoth trade imbalance that has undermined the dollar, agitated the stock market and reduced confidence in the U.S. economy.
Such figures may obscure a robust increase in U.S. manufacturing exports, brought on by the lower-valued dollar. Exports actually surged last year, prompting some economists to predict that America’s trade problems were coming to an end. What has been less noticed, however, is the nation’s continuing appetite for imported products, an appetite that makes progress toward narrowing the deficit slow and difficult.
That appetite has become so big that even a modest import increase--in this case 4%, or $3.8 billion, in the last three months of 1987--virtually offset the stronger 6%, or $3.9 billion, gain in exports in the same period. “Unless we at least stop the growth in imports, it’s going to be very difficult to get rid of the trade deficit in the foreseeable future,” declared Robert H. Chandross, chief North American economist for Lloyds Bank in New York.
Some observers now say that this country’s import bills will not shrink significantly unless a downturn comes along to shrink people’s purchasing power. “If we get a recession, imports will come down like a rock,” said Robert Dunn Jr., an economics professor at George Washington University in the nation’s capital.
Why have consumers become so devoted to items made overseas? The answers, of course, vary, but some of those interviewed said the question was less one of patriotism and more one of getting the best value out of a purchase.
Lynn M. Pelletier, a Los Angeles paralegal, said she likes to buy U.S. goods, but would consider it “out-and-out prejudice” to reject an item just because it was not American. Like many consumers, Pelletier, 38, seeks reliability: “When I buy something, I like to think it’s going to last me a long time and not cause trouble--because I’m too busy all the time to be catering to appliances.” She maintained: “If you don’t support excellence by buying it, you won’t get excellence.”
Origins Elusive
One thing complicating the picture is the fact that it has become increasingly difficult to determine whether a product was made in America. Japanese auto makers, for example, are making more cars inside the United States to shelter themselves from the economics of currency changes and the politics of protectionism. And U.S. companies often rely on foreign manufacturing operations for their American-labeled products.
Asked about her new video cassette recorder, for example, Sylvia Lyons, a landscape architect in Diamond Bar, replied: “I don’t think I could tell you if it’s American-made or foreign. It’s got an American name on it.” In fact, her General Electric VCR was made in the Far East, according to a spokesman with Thomson, the French firm that took over GE’s consumer electronics late last year.
Lyons, 36, who drives an Oldsmobile station wagon, added: “It makes me feel good when I buy something that’s made in the U.S.A.”
While U.S. officials are relying on the lower value of the dollar compared to foreign currencies to reverse the trade deficit, consumers’ judgments about quality, style and other characteristics also determine whether the purchase is American or foreign.
“Price is generally important, but it’s not the only reason people buy things,” observed Ben Enis, a marketing professor at USC. “If products from a certain part of the world have a reputation, a certain image, people will continue to buy them (even) if the prices are adjusted upward.”
That proposition is getting a clear test in the auto industry these days. Japanese auto makers are now struggling with currency changes that require them to charge more dollars for their cars in the United States in order to recover their costs. They have swallowed much of the increase, but since 1985 have passed on price increases totaling about 25%--significantly more than U.S. price hikes during the same period.
For certain products, notably light pickup trucks, the Japanese image of reliability has not been able to offset the price disadvantages. Toyota, Nissan and Mazda all suffered plunging sales last year for the trucks, while Ford, General Motors and Chrysler enjoyed strong growth. For example, Toyota’s sales of light pickups fell from 384,018 to 303,783, according to Ward’s Automotive Reports. Sales of the Ford Ranger shot up from 269,490 to 305,295.
‘Clobbered in Trucks’
“The Japanese were clobbered last year in light trucks,” observed Thomas F. O’Grady, an analyst with Integrated Automotive Resources in Wayne, Pa.
But the situation has been very different with passenger cars, a much larger market that highlights the challenge facing U.S. industry. Despite the higher prices, some Japanese auto makers actually increased their share of the American market last year.
While many credit Detroit with upgrading its quality and efficiency in recent years, O’Grady warns that unless U.S. auto makers redouble their efforts, the temporary advantages brought on by the weaker dollar will vanish. “I don’t see the domestic manufacturers moving hard to capitalize on it,” he cautioned. “I know they think they are, but I don’t see them moving fast.”
If U.S. auto makers succeed in capitalizing on their price advantages, they will have to sell cars to people like Chris Lamson, a Los Angeles resident who manages popular music groups. Lamson, 31, said he does not live by the motto “buy American,” but he nonetheless made a point of doing so when he drove a new Chrysler off a car lot a few years ago. Since then, he said he has endured $2,000 in repairs.
‘Can See Why’
“The American car companies keep screaming that you should buy American--and a guy like me does--and I’ve got all these repair bills,” he said. “Before that I drove Toyotas and I think I changed the oil once. I can see why people stick with imports.”
It all adds up to a dilemma for Lamson, who retains some fondness for his Chrysler, despite the repair headaches: “If I had to buy a car right now, I’m not so sure I’d go with a Toyota,” he said. “These days they’re very expensive. It just frustrates me as a consumer.”
Other, less anecdotal measures, also suggest that traditional American auto makers have yet to fully meet the quality challenge of the foreign companies. Last year, when J.D. Power & Associates queried new car owners about their purchases, only two traditional U.S. models--Cadillac and Mercury--made the top 10 in terms of being problem-free. The Westlake Village-based consulting firm found that the leaders, in order, were Acura, Honda, Mercedes, Toyota and Mazda.
“I don’t think they (U.S. manufacturers) are interested in giving the American public a real good value for their money,” declared Pelletier, who drives a Toyota. “Didn’t we invent the car? You’d think we could do something better.”
The auto makers seem to face special reservations on the part of the public. Pelletier, for example, said she generally has confidence in other U.S. products. Todd Alberstone, a Los Angeles attorney, said he also believes that U.S. quality stands up to that of other nations. The former economics major, 28, maintained that “one should do one’s bit to support your economy.”
That in mind, he recently picked up an Apple computer. But Alberstone acknowledged that he did not feel emphatically enough on the subject to seek out an American car. Instead, he recently bought a Nissan 300 ZX. “I’d prefer to buy American, but it’s not the most important factor for me,” he said. “The most important factor is being happy with the purchase.”
He added that in clothing, being happy has meant a tendency to take home Italian and French products--”because I like the looks of them better--not because I think they last better.”
