U.S. Trade in Period of Transition

By Bill Menezes, Ap | THE JOURNAL RECORD, December 7, 1985 | Go to article overview

U.S. Trade in Period of Transition


Bill Menezes, Ap, THE JOURNAL RECORD


NEW YORK - Recent events might signal that a major turnaround in the nation's foreign trade climate is under way, but analysts say they still expect a long wait for any reversal to benefit battered domestic industries.

In the past week, approval of protectionist trade legislation by the U.S. House was accompanied by news of the effects of other attempts to reduce the nation's trade deficit, including preliminary sanctions against some Japanese computer chip imports.

""I think it's the beginning of a slow, long-term adjustment, which sooner or later has to occur,'' said Stephen D. Cohen, an international economist for Washington Analysis Corp., an economics consulting firm. ""You just can't continue projecting U.S. trade balances of this size forever.''

The trade adjusting process began in earnest in September.

At that time, the Reagan administration took a more aggressive free trade stance and initiated a concerted multinational effort to make imports more expensive in the United States by driving down the value of the dollar against other currencies.

In a related area, administration officials proposed this past week to loosen 71-year-old antitrust restrictions on corporate mergers among businesses harmed by foreign competition.

The Commerce Department issued a preliminary finding early this week that certain types of Japanese computer microchips were being ""dumped'' on U.S. markets at prices below the cost of production.

Then, the Federal Reserve Bank of New York reported that in the six weeks following the September agreement by the United States and four major trading partners to drive down the dollar it had sold$3.2 billion - and 10 other nations sold $7 billion - on foreign exchange markets.

Partly because of the massive intervention, the largest by the Fed in more than five years, the dollar fell as much as 13 percent against major foreign currencies during that period, the Fed said.

Depressing the value of the dollar on foreign exchange markets was sought in order to make imported goods more expensive, which could help reduce the trade deficit and curb protectionist sentimentsin Congress.

The dollar's continued fall against the Japanese yen prompted announcements by Honda Motor Co. of Japan and by several major Japanese semiconductor companies this past week that they were increasing the prices of exports to the United States.

In addition, the House passed and sent to President Reagan legislation aimed at sharply limiting textile and clothing imports from East Asia, despite veto warnings from administration officials.

Cohen, who also is a professor of international economics at American University, said the aggressive free trade posture of the Reagan administration, combined with the attempts to depress the dollar, should have a noticeable effect by 1987.

Cohen said that for the next year, foreign companies probably would get less of a share of U.S. economic growth, rather than lose any current sales, even in the face of price increases for foreign-made products.

""I think Americans will continue to want Japanese cars, even if they're more expensive,'' Cohen said. ""But on the other hand, anyone who thinks the Japanese will increase their imports from the United States because of the exchange rates is naive, in my opinion.''

Cohen said a key factor in any trade turnaround would be action on legislation to reduce the U.S. budget deficit, which he said would help curb the U.S. appetite for imports by slowing down the economy.

William Mazzocco, an international economic and geopolitical consultant for Washington Forum, a consulting firm, said the United States might never be able to enact a fundamental change in the trade situation, but probably would work to cut its losses. …

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