Academic journal article Asia - Pacific Issues

America's Trade: Markets Count More Than Deficits

Academic journal article Asia - Pacific Issues

America's Trade: Markets Count More Than Deficits

Article excerpt

Distorting tho Ifrado Deficit

United States support for free trade areas in the Western Hemisphere derives mainly from its worries about U.S. trade deficits everywhere else. But those worries are terribly exaggerated. What has largely gone unrecognized is that after the record high of $152 billion in 1987, America's trade deficit then fell every year through 1991, when it was $66 billion. The 1992 rise, to $84 billion,1 was about half its 1987 peak, and was the first increase since 1987. The rise clearly was not caused by a slowdown in U.S. exports: they grew by $26 billion, but imports rose even more ($45 billion). This reflected both recovery in the United States and slowdown in Europe and Japan. (For example, Japan's burst "bubble" led Japan Air Lines to slow its receipt of large aircraft- America's leading export.)

The deficit has fallen from 2.8 percent of Gross Domestic Product (GDP) in 1987 to 1.4 percent in 1992 (fig. 1). Despite the many press and congressional references to America's "ballooning deficits," the dollar-value of the trade deficit in 1992 was $20 billion less than it had been in 1984 (fig. 2).

Even more significant-and dramatic-has been the decline in America's trade deficit as a percentage of global U.S. trade (fig. 3). This is the most important measure because it tells us the size of the deficit within the context of constantly increasing U.S. trade. The trade deficit has actually fallen from a level equivalent to almost 24 percent of trade in 1987 to 8 percent in 1992. That was less than it had been 15 years earlier- in 1977-when the deficit was 10 percent of total trade.

There is a simple reason why America's trade deficit has returned to the same relative level as 15 years ago: U.S. exports have grown sharply, while its imports have been much more restrained. A good example is trade with Japan. From 1985 to 1992, U.S. exports there have more than doubled -from $22.6 billion to $47.8 billion-but in the same period, imports have risen by less than a third. Indeed, both in 1990 and 1991 the United States imported less from Japan than in 1989, and moved ahead again only in 1992.

The fact is that America's foreign trade position is in far better shape than conventionally thought. The common view is that the United States continues to experience very large, stillgrowing and presumably unacceptable trade deficits. Its corollary is that American exports cannot compete in world markets. Both views are more myth than fact, but they have powerfully distorted American trade policy. In reality, both in dollar-size and relative to the size of overall U.S. trade, America's trade deficit has fallen sharply. The further reality is that U.S. exports are demonstrably successful-especially in Asia. And it is these job-creating exports that move the American economy in the right direction.

Nevertheless, the powerful symbolism of a trade "deficit" lives on, with all its connotations of state weakness and profligacy. That is why the deficit with Japan has come to mean, for many Americans, that Japan is strong and America is weak. The Clinton administration apparently shares this view-choosing to focus on U.S. trade deficits, rather than its already-healthy exports- even when both are in the same market.

President Clinton made this clear during his first formal press conference on 24 March 1993. When he spoke about trade, Japan was his entire focus-but not as America's largest overseas market, with $48 billion in U.S. imports each of the last three years. Instead, the president spoke with irritation only about the U.S. trade deficit with Japan, saying: "The persistence of the surplus can only lead one to the conclusion that the possibility of obtaining real, even access to the Japanese market is somewhat remote."2

Mr. Clinton is wrong about both the "persistence" of the deficit with Japan and about America's presence in Japan's market. When the deficit was at its worst, in the mid-1980s, it equaled half of U. …

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