The Implications of Developing Trends in Trade Policy

By Ostry, Sylvia | Business Economics, January 1990 | Go to article overview

The Implications of Developing Trends in Trade Policy


Ostry, Sylvia, Business Economics


At present the world trade system is characterized by uncertainty. As the U.S. budget deficit recedes as a issue, trade policies will rise in priority. Major issues will be the U.S.-Japanese bilateral trade deficit and targeting specific industries instead of broad industrial policies. Regional trading blocs are expected to develop, but their policies cannot be forecast at this time. Global corporations must function in this uncertain environment.

THE CENTRAL POINT of this paper is that the governing characteristic of the world trading system at present is mounting and pervasive uncertainty. This uncertainty is the product of the separate but interrelated decisions of the main actors who together shape the international economy -- the governments of the triad of the U.S., Japan and the European Community -- and the global corporations. None of these has a clear strategic view of what the system as a whole should be. Hence the pervasive uncertainty.

Let me first sketch out the major background factors and then raise some policy questions.

MACRO BACKGROUND FACTORS

The world trading system of the 1980s has been affected as much by macroeconomic or financial forces and policies as by the micro factors that are its traditional domain. As is well known, a powerful force fueling protectionist pressures in the U.S. in the first half of the decade was the wide swing in exchange rates and the rapid deterioration in the U.S. trade balance stemming from incompatible macro policy positions among the key industrialized countries of the G-7. The improvement in current account positions and exchange rate realignment since 1985 has been attributed in large part to the initiation and evolution of policy coordination in the G-7 since the Plaza Accord of that year.

While the full fury of the protectionist pressures has abated, and the Omnibus Trade Act of 1988 is an improvement over most of its 300-plus ancestors of the earlier part of the decade, some of its provisions suggest that U.S. trade policy is set on a new course, a subject to which I'll return later. During the next few years, once again, a key element in how this is exemplified is likely to be the current account positions of the U.S. and its main trading partners.

The U.S. Budget Deficit

There are several reasons for this assessment. The first relates to the U.S. fiscal deficit. Throughout the policy debate of the 1980s, a near-universal agreement existed among policymakers in the G-7 that a necessary (even for some, sufficient) "solution" to the problem of the current account imbalances was a sustained and significant reduction in the U.S. fiscal deficit. That consensus view is fast eroding, both internationally and domestically in the U.S.

On the international front, while standard communique rhetoric still scolds the U.S. for lack of decisive action on the fiscal front, the heat has dissipated. The fiscal-solution-to-the-world's-problems tone has evaporated. The reason is made quite clear in the most recent OECD Outlook: "In the more open international financial environment of the past decade, current account imbalances have proved financable on a large scale, and for longer, than would have been expected earlier." The threat of a dollar crisis -- the best international argument to spur U.S. budget action -- has become embarrassingly less credible in the face of reasonable exchange rate stability and, indeed, recent dollar strengthening. The heat has gone out of the issue. But the problem of current account sustainability should be redefined. The urgent issue is not financial but political sustainability.

On the domestic front in the U.S., the fiscal-deficit-doesn't-matter school has attracted more and more adherents and is certainly gaining strength in public opinion. As Brookings head Charles Schulze recently observed, "The left of center finds common ground with the supply siders of the far right" in arriving "at a common set of conclusions deemphasizing the importance of the deficit. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The Implications of Developing Trends in Trade Policy
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.