Huge U.S. trade deficit

Press, 14 December 1985, Page 18

Huge U.S. trade deficit

The record foreign trade deficit in the United States in the September quarter is ominous. The deficit reached SUS33.I billion. The high value of ; the American dollar, which has made it harder to sell exports and easier to buy imports, and the generally low returns from agricultural produce are key factors in the deficit figure. The high value of the dollar is the more important element; but these are not the only influences at work.

American productivity, that is the output of each worker, ,is still high; but the Germans and the French are now ahead. Nor does the United States have the clear technological lead it once had. It is possible to export more if wages are kept low, but the United States generally wants to compete in products in which quality and technological superiority count, and Americans do not want to join the low-cost countries. Yet if the United States does not have the technological edge, it has a severe problem. Some bad management decisions were also made, particularly in the car industry. Japan started producing cars which were more in line with what Americans wanted. All of these factors have contributed to the record trade deficit for the quarter.

After an initial experiment with a severe economic policy, and a continuation of the rhetoric of the policy without the substance, the United States has moved towards encouraging growth by creating demand through a less rigid control of the money supply. The fact that the United States did this helped avoid a world

recession. Because Americans had money to buy, and because imports were cheaper, other countries, including New Zealand, have been able to export to the United States and their own economies have kept going. The engine of the United States economy has pulled the train bi the rest of the world.

One question that arises now is whether the United States, seeing the continually rising trade deficits, will want to, or be able to provide the same stimulus to the rest of the world. Another question is whether the rest of the world, which has helped fund the internal American deficit that has made the growth possible, will be prepared to continue to invest in the United States. If the lending comes to an end, the value of the American dollar will fall and import prices there will rise. This will cause inflation and the response may be an austerity package in which the United. States retreats from the aim of economic recovery. Although the American dollar is 20 per cent lower than it was at the beginning of the year, the trade deficit shows that the fall has not been sufficient to bring a trade balance closer. Present estimates suggest that the falling dollar will simply help to level of f the trade deficit. This is temporary comfort for the many countries that are selling to the United States; in the longer run, the fairly open doors for imports may get a push from a contracted economy. Such a change would renew fears of a world-wide recession in trade.