US Sheds Image As Export `Wimp' In World Trade
Four-year drop in trade deficit pegged to cheaper dollar and lower US labor costs
UNITED States exporters must have been pumping iron: They are shedding their image as weaklings getting sand kicked into their faces by muscular Japanese and European companies.
US exports have outgrown imports for five years. From 1986 through 1991, the value of US merchandise exports grew 86 percent, an average of more than 13 percent a year. Exports accounted for 30 percent of the growth in the American economy in those years. Without export growth, the 1990-91 recession would have been twice as bad. Exports accounted for all the growth in the economy in the final quarter of last year. The US Commerce Department reported yesterday that exports during that period rose by $12.8
billion. Further, the US has overtaken Germany as the world's leading exporter.
"The trade balance improvement has not only been substantial; it has been salvation for the domestic economy," says C. Fred Bergsten, director of the Institute for International Economics.
The improvement of the US export picture dates back to a big decline in the value of the dollar after February 1985. This made US exports more price-competitive in world markets and imports more expensive. But it takes about two years for such a change in exchange rates to have its full impact on trade.
By 1991, the US deficit in merchandise trade had fallen to $66 billion, down from $159 billion in 1987. The current account, a broader trade measure that includes services such as tourism and insurance, and investment flows as well as goods, fell more sharply. Last year that deficit shrank to $8.6 billion from $160.2 billion in 1987. (California economists see signs state is pulling out of its worst slump since the '30s, Page 3.)
The current-account deficit was deflated hugely by some $42 billion in contributions to the US from its Desert Storm allies. "We exported military services last year in great quantity," says Daniel Bond, chief economist of the Export-Import Bank in Washington. "I hope we don't do it again."
Mr. Bond expects the current-account deficit to increase this year. Indeed, because the economic recovery in the US is speeding up and the economies of important trading partners (Japan and Europe, for instance) are slowing down, economists anticipate no improvement in the trade deficit this year. David Rolley, an economist with DRI/McGraw-Hill Inc., an economic consulting firm in Lexington, Mass., forecasts a $65 billion merchandise trade deficit in 1992, growing to $106 billion by 1994.
This increase is regarded primarily as the result of business-cycle trends here and abroad, not of a decline in the competitiveness of US exports. "I don't see terribly serious competitive problems if we look at the entire spectrum of exports," Mr. Rolley notes. "A lot of people, when they think of trade, just think of cars. That is not helpful."
The US share of the industrialized world's manufactured exports rose from 14 percent in 1987 to 18 percent in 1990. Currently, the US exports around 7 percent of its total national output - not far from the 9.7 percent comparable figure for Japan.
Erich Heinemann, chief economist of Ladenburg, Thalmann & Co., an investment banking firm in New York, sees US exports as particularly strong in four areas: capital goods, including computers and aircraft; services, including education, medical services, and consulting of all sorts; nonpetroleum industrial materials, such as pulp and paper, chemicals, and drugs; and agricultural goods.
Because of the structure of US exports and imports, further improvements in the US trade picture may be more difficult to achieve. Economists expect the recovery of consumer spending in the US to suck in more imported electronic goods, cars, and clothing. With economic slack abroad, demand for US capital goods may fall.
Susan Hickok, a researcher at the Federal Reserve Bank of New York, notes that foreign competitors are catching up in the capital-goods business. She concludes a further drop in the value of the dollar overseas may be necessary to return the US to balance on its international accounts.
Mr. Bergsten holds that the undervaluation of the Japanese yen is the key problem for the US. He says the Group of Seven industrial countries should launch a drive to boost the price of the yen from about 135 yen for $1 now to 100 per $1.
Japan's trade surplus grew last year to $100 billion. Bergsten says the Japanese government should launch a major government spending program to stimulate its economy and reduce that surplus. Since the government has a huge budget surplus, equivalent to 3 percent of national output, this is feasible, he notes.
US exporters in general have seen their cost-competitiveness strengthen. Since 1985, US unit labor costs have remained constant. Foreign unit labor costs, in US dollar terms, have risen at more than 10 percent annually in the 1985-90 period in Japan, Britain, France, Italy, Germany, South Korea, and Taiwan.
"We are doing much better," says Douglas Booth, president of the Society of Manufacturing Engineers in Dearborn, Mich. "We are addressing the problems, including quality. We don't have to make apologies."