Academic journal article Federal Reserve Bank of St. Louis Review

Trade between the United States and Eastern Europe

Academic journal article Federal Reserve Bank of St. Louis Review

Trade between the United States and Eastern Europe

Article excerpt

THROUGHOUT MOST OF THE post-World War II era, trade between the United States and Eastern Europe was minuscule. The United States maintained high tariff barriers on imports from most Eastern European countries and also restricted its own exports to these countries. In particular, the United States prohibited the export to these countries of high-technology goods related to national security interests. Eastern Europe also maintained various trade restrictions on imports from the United States. Most Eastern European trade was controlled by the state and conducted within the Council for Mutual Economic Assistance (CMEA), the trade organization of the Soviet bloc countries.

With the disintegration of the Soviet system and the collapse of the CMEA trading bloc, Eastern European countries began to re-orient their trade to the West. As these countries undertook political and economic reforms, the United States reduced its tariff restrictions on their products. Consequently, trade between the United States and Eastern Europe has expanded substantially since 1988. This paper examines the growth and pattern of trade between the United States and the three Eastern European countries which have made the greatest progress in adopting market reforms: the Czech and Slovak Federal Republic (CSFR), Hungary and Poland.(1)

Studies have shown that the U.S. economy is likely to be one of the principal beneficiaries of economic liberalization in Eastern Europe.(2) U.S. exports to, and investment in, the region should increase as the restructuring of the economies of Eastern Europe results in an increase in demand for capital goods and technology, and opens new markets for U.S. products. Such gains will be limited, however, if the Eastern European countries reverse the pattern of opening their markets and raise protectionist barriers against products from the United States.

Despite the initial steps taken to reduce trade barriers on Eastern European products, the United States maintains quantitative restrictions and other forms of protectionism on many products from Eastern Europe. Most significantly, the United States maintains a high degree of protection against the importation of textiles and apparel, chemicals, steel and agricultural products from Eastern Europe. These goods TABULAR DATA OMITTED are produced by the sectors in which Eastern Europe is most competitive. The possibility exists for an increase in protectionism in Eastern Europe as these countries have become increasingly frustrated by the lack of progress in securing access to U.S. as well as other Western markets for their products. How the problems stemming from these trade barriers are handled will be an important determinant of future trade flows between the United States and the CSFR, Hungary and Poland.

This paper describes the recent changes in these trade flows and examines the restrictions facing Eastern Europe in its trade with the United States. The structure of the paper is as follows. Section two provides an overview of trade between the United States and the CSFR, Hungary, and Poland. The causes of the recent growth in trade between the United States and Eastern Europe are examined in section three. The product composition of this trade is discussed in section four. Section five examines U.S. restrictions on the products in which the CSFR, Hungary and Poland have their greatest comparative advantage. The conclusions are presented in section six.

OVERVIEW OF TRADE

Trade with the CSFR, Hungary and Poland has always comprised a low percentage of the total international trade of the United States. Neither U.S. exports to these countries nor imports from any of the three constitute more than 1 percent of total U.S. exports or imports. From the perspective of the CSFR, Hungary and Poland, however, trade with the United States constitutes a larger share of the international trade of each country.(3)

Despite its relatively small size, there has been a substantial expansion in trade between the United States and the CSFR, Hungary and Poland following the disintegration of the Soviet bloc. …

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