In Trade, It’s One World
Any lingering hope that the U.S. economy could remain largely unaffected by the financial crisis in Asia has been laid to rest by the latest trade figures. Declining American exports to Pacific Rim countries boosted the trade deficit in April to $14.5 billion, its highest level since 1992. In the first four months of this year, U.S. exports to the region fell by 10.5%, while imports rose by 6.6%.
Imports from Asia were valued at $103 billion, nearly double the value of exports. Particularly notable was the decline in sales to hard-hit South Korea and Indonesia.
Asia had been among the fastest-growing markets for U.S. exporters. Falling demand is now starting to threaten jobs. Some economists see the Asian crisis reducing the U.S. domestic gross product by as much as 1.5% in the first half of this year.
The news isn’t wholly bad. Any slowdown in the rate of growth reduces the risk of inflation here. Cheaper Asian imports help hold consumer prices down. That lessens the chance that the Federal Reserve Board might increase interest rates, good news to those seeking home mortgages and to business borrowers. The other side of the coin is that weaker demand for U.S. goods retards job creation and affects corporate profits and share prices.
As always in trade and national economies, the forces are interrelated. The trade figures add urgency to U.S. efforts to get Japan to do more to reform its economy. Unless Japan acts in ways that would help boost imports from its Asian neighbors, those countries can be expected to try to increase their exports to the United States. And unless Japan adopts the fundamental reforms needed to boost domestic growth and strengthen the yen against the dollar, its own increasing trade surplus with the United States could once again set off political fireworks.
The latest figures on the trade imbalance are a reminder of how interconnected the world economy has become. Those in Congress who are determined to sit tight on the request to increase the reserves of the International Monetary Fund--needed should the Asian financial crisis deepen--should think again about the political game they are playing.
