Why the world smiles as US economy revives
By far the most important world news of the past week has been the accumulation of evidence that the American economy is healthy and coming out of the 1981-82 recession and the ''stagflation'' of the previous decade.
The economic growth rate for the first two months of the year was estimated at 4 percent - a higher rate than most economists would have dared to predict a month ago.
The New York stock market, at new record levels, reflected the rise. Housing construction was up. Future growth of the American business scene appeared to be looking brighter, too, with the February index of leading economic indicators recording its highest monthly rise since 1950.
If the gains hold good, the implications are big.
A healthy American economy is essential to the welfare of the whole ''free world'' community. It is also the essential foundation under the military strength of the United States. Without recovery it is doubtful that the American economy could sustain the weight of the Reagan rearmament program. With a growth rate of 4 percent even the burden of that arms program could become more endurable.
It is, of course, also important politically in the US. A resurgent American economy means enormous political credit for President Reagan and hence a revival of his political influence, which had been sagging of late. He would be unbeatable for re-election if the recovery holds through the year and if he should happen in addition to cap it with an arms control agreement with the Soviets.
More important are the implications for the outside world.
The US recession has been a major reason for the trend of recent years toward fragmentation of the system of alliances and associations which has sustained the Western world.
Only half a year back the concern was widespread among world leaders that the West European allies and Japan would break away from the association with the US. US-Canadian relations were strained. There was a dangerous trend toward fragmentation even inside the European Economic Community. The whole fabric within which North America lived seemed to be coming apart at the seams.
A measure of how dangerous the situation was is to be found in a remarkable treatise written by West Germany's recently retired Chancellor Helmut Schmidt. It was printed simultaneously last week in London, Hamburg, Paris, Tokyo, and Milan. It reached the US in last week's US edition of the London Economist. Obviously, it was written before this past week's accumulation of economic good news. To read it is to know how surprising and how unexpected in the best informed European circles is the good news.
''We are now in a deep world economic recession, the worst since the 1930s,'' wrote the former German chancellor. ''If we misread the signs of the times, and continue to let the reins drag, our children will compare them with the catastrophe of the 1930s. They will begin to doubt our economic and political system, and in some countries they may - as the Germans did in 1933 - jettison it altogether.''
The most dangerous trend, in Mr. Schmidt's view when he was writing, was the pressure in the US and in all other ''free world'' countries toward trade protectionism. The US was reaching for ways to reduce Japanese car imports. The Japanese had their own forms of retaliation. The French were finding administrative devices for keeping out the goods produced by supposedly friendly countries.
The list is long and well known. The most dramatic example of what countries will do in an economic crunch has been the forced expulsion of over a million neighbor Africans from Nigeria. This is technically known as ''exporting unemployment.'' It is also a form of autarchy of the kind which deepened and lengthened the depression of the '30s and had much to do with the coming of World War II.
This week's good economic news in the US will presumably take pressure out from under the demand for trade protectionism. It should spill over into other members of the Western trading community. It means that the others, instead of wanting to distance themselves from the American economy by protectionism, will instead wish to reopen their channels with it in order to better share in the reopening of a vigorous economy.
How long lasting and how strong will be the recovery?
That probably depends on the extent to which it is achieved without getting back into inflation. This past week in the US the steel industry witnessed a settlement between management and labor under which labor accepted a 9 percent cut in wages in return for an agreement by the companies to invest the savings from lower wages in steel operations.
If wages and prices remain stable while the US economy regains forward momentum, prospects should be bright indeed. So far, wages and prices in the US show a degree of stability which has been unknown since the inflation began to pick up speed during the Nixon years.
The decline in oil prices is one reason why this time we may get economic recovery without revived inflation. As we went to press we did not yet know how much lower oil prices were likely to go. The OPEC countries have been groping for a floor that might hold.
Nor at press time do we yet know the outcome of the West German elections. We can know that if the West Germans return a government that firmly backs NATO missile deployments, there will be improved prospects for an arms control agreement between Washington and Moscow. A West Germany visibly determined to deploy should concentrate the minds of Soviet arms negotiators in Geneva.
With NATO working together, and the free economies in tune, the outlook would be bright for that association of Western Europe, North America, and Japan which has served its members well over the past 30 years.