Today’s Trade Figures Don’t Tell Story of Future
The news last week that the U.S. recorded its worst deficit ever in trade and investments seemed particularly baleful. After more than a decade of concern about the competitiveness of U.S. industry, imports were rising and exports were falling.
The astronomical figures--a looming deficit on what is called current account of $164 billion for 1996--seemed incomprehensible. But curiously, the financial markets reacted mildly. Bond markets shuddered but calmed themselves quickly; the stock market gyrated for other reasons.
And the U.S. dollar’s value actually rose as World Trade Organization negotiators meeting in Singapore agreed to free up trade in telephones, computers, software and CD-ROMs, the whole $1-trillion global information industry.
What’s the story? Are the huge trade and account deficits cause for concern or not? The answer is no in the short term and yes in the long term--but not for the reasons most people think.
The deficits indicate not lack of competitiveness but an imbalance in the world. The U.S. economy is too prosperous, and other major economies, whether in Western Europe or Japan, are hobbled by political troubles of their own making.
The European countries have reined in their economies in trying to squeeze themselves into a single currency called the Euro. This has slowed their growth and reduced their purchases of U.S. goods and services.
Japan still has not reformed its economy and continues to teeter on the brink of recession. And developing countries in Asia and Latin America have also slowed in their growth.
The result is that the U.S. remains an unnaturally active market for the goods and services of others, explains economist Albert M. Wojnilower of Clipper Group, an investment company affiliated with Credit Suisse First Boston.
The problem is that this kind of one-sided trade worsens the U.S. deficit and sets off alarms. Other countries that earn dollars by selling goods here turn around and reinvest in U.S. Treasury bonds or in private companies through the stock market. The flow of money into Treasuries pushes up the dollar even as U.S. obligations to pay interest to foreign investors adds to the current account deficit.
To top it all, the trade figures are as flawed as the consumer price index was recently found to be. They dramatically understate U.S. exports of entertainment, education and information and misstate the true patterns of world business.
It’s a complex and confusing world, but one that must change for the good of all. Other economies must improve to give the world growth markets. China has a lot of people, but with per-capita income of $500 or so, it stands to reason that its economy must develop for its people to become global consumers.
The U.S., by contrast, with an aging population, is not an appropriate market for so much of the world’s goods. As they flood in here, those imports undermine some U.S. industries.
The problem can correct itself. If and as other economies improve, international accounts will move toward balance.
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Meanwhile, the U.S. must continue to work on the information industries that will be its standbys going forward. And if we look at some developments in those industries, we will understand why trade figures are flawed and what the future holds.
Entertainment, with the freeing up of television systems in formerly totalitarian countries, is booming. Sound stages and other production facilities in Romania and Hungary are part of a global programming network that originates with ideas and ends with post-production work in Los Angeles.
It is a true global business, but you’d never know that from the trade figures that lump movies, TV shows and music videos along with scientific patents under a few billion dollars in royalty fees.
The actual figures are far beyond that. U.S. movie exports to Europe alone topped $5 billion last year according to Screen International, a London-based publisher of box-office data. Overseas revenue from entertainment features of all kinds undoubtedly tops $10 billion and is growing as multiplex screens, cable channels, satellite broadcasting and the Internet cover the globe.
In education, the U.S. has long realized the value of University teaching, for its own population and thousands of foreign students. Now, thanks to technology, education exports are about to take an original turn.
In January, the state of California will launch an online university offering courses from the University of California and California State systems as well as from private schools such as Stanford and USC.
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Simply put, the state sees a market, says Joseph Rodota, deputy chief of staff to Gov. Pete Wilson. “In Japan today, 10,000 executives are on a waiting list to go to Duke University for a master of business administration degree, at $80,000 per degree. We think we have a competitive product in the course our universities have to offer.” Details remain to be worked out, but the idea is clear.
Truth is, the world economy is now characterized by flows of information that defy the narrow categories that traditionally define trade. What happens in export and import terms, for example, when a U.S. contractor such as Fluor Corp. designs a road system for a city in Malaysia by calling on engineers in its Munich, Germany, and Irvine offices and sends the resulting plans to Kuala Lumpur via computer network?
What happens is a real economic event in the global economy, but whether and how that event is recorded remains a question.
As Federal Reserve Board Chairman Alan Greenspan put it recently, our economy is no longer measured in tons of steel but in ephemeral units of software. That’s why U.S. negotiators in Singapore worked so hard last week to open the world to trade in information technology.
That they achieved an agreement is a fitting and hopeful footnote to a week in which trade account figures were particularly--and unnecessarily--baleful.
