There’s a Silver Lining in the Trade Deficit

The Bush Administration has been blitzed before it even takes the field. The dollar has tumbled, the stock market has fallen. And from every side come demands to do something--about the budget deficit, trade deficit, the U.S. economy, the world economy.

But so far, what George Bush has done is name James A. Baker III to be secretary of State and Nicholas F. Brady to be secretary of the Treasury. Both are men of old family wealth, leading universities and social position like himself--members of the American Establishment. Such men are not expected to make great changes but to run well the system presented them. If Bush is sending the world a message by these two appointments, it would be calm down and gain perspective.

Which is not a bad message for a worried world. The deficits that arouse so much anxiety--while indicating some real U.S. failings--also reflect a healthy, changing world economy. Perspective is needed to see that larger context.

For what is really going on went on before. Reflect for example on Anthony N. Brady, a 19th-Century tea merchant in Albany, N.Y., and great grandfather of the Treasury Secretary. Brady helped to finance the beginnings of electricity, setting up power companies and backing partners of Thomas A. Edison. It was a time of inventions transforming work and industry, drawing workers from farms to factories and offices, lifting labor from subsistence agriculture and menial servitude. Hard to believe, but 100 years ago the majority of workers were still domestic servants.

Enlargement of Economy

Now, that development process is occurring worldwide as production of ships and cars and TVs has modernized South Korea and Taiwan, and is proceeding to Thailand and Bangladesh and Mexico.

More than economics is behind the shift. “What we are living through is an enlargement of the world industrial economy,” says Albert M. Wojnilower, economist for the First Boston investment company and before that for the Federal Reserve. Today, however, instead of workers coming to technology as farmers came to Albany factories, the technology goes where the workers are. Automated machinery has simplified production, and workers in developing countries can be trained to use it.

So recently backward nations sell to the world. Hong Kong and China supply windshield-wiper motors to Mercedes-Benz in Stuttgart; IBM manufactures computers in many locations with parts from all over. Such a system is only possible, says Wojnilower, who was born in prewar Austria, “when there is world peace, so oceans are passable, and borders crossable.”

And, he adds, “The force that maintains world peace--beyond arguments over its efficiency or size--is U.S. military power.” It is one of two ways the United States helps countries become members of the industrial world.

The other is by purchasing their goods. The newly industrializing countries still produce more than they can yet consume. So the big customer, America, runs trade deficits. When those nations become consumers, production will shift geographically once more.

To be sure the world is not so neatly tied with a rosy ribbon. The trade deficit is caused also by U.S. industry falling behind competitively in high-technology products where it should lead.

And the real cause of the budget deficit is a worrisome lack of U.S. savings, although foreign complaints about the deficit are not really about money--the $30 billion Bush must find in a $4.5-trillion U.S. economy. They’re about trust. Nations dependent on U.S. military and economic power want policy coordination; they want to see that the United States won’t run its economy only to suit itself, that it will remember their pension funds hold U.S. bonds, too.

So undoubtedly, the Bush Administration will reduce the budget deficit--a bipartisan deal should be put together early in the new term--and live up to the interdependence bargain

Could things have been otherwise? In theory, perhaps. Production technology could have remained in the United States postwar, and Koreans could still be making simple textiles. But, keep that in perspective: It would be a less stable, and a poorer world.