After 65 years of plains based on the views of ardent, internationalist traders, the sealing trade deficit threatens to undermine the prosperity of United States.
Treasury Secretary Robert Rubin, in a speech about the U.S. trade deficit, bluntly has told the International Monetary Fund, or IMF, "This situation cannot continue indefinitely.... Japan and Europe must boost domestic demand-led growth." The day before, talking to the more private Group of Seven finance ministers, he went into even more pointed detail with a warning that concluded: "The whole world's economy is depending too much on selling to the United States. If the other major nations want to keep protectionist forces here from gathering steam, they need to make sure their own economies get back to growth in order to take some of the pressure off our ballooning trade deficit."
It is serious business when words such as these are exchanged, and it has been mightily provoked. This year's U.S. red ink in trading with the outside world clearly will far exceed 1998's $169 billion, already a deeply worrisome figure. And Fred Bergsten, director of the Institute for International Economics, calls this "the biggest single threat to our economy, which could lead to a plunge in the dollar's value and a big sell-off in stocks and bonds." If Bergsten were a certified protectionist or an enemy of globalization, that might be a routine remark. But coming from a former U.S. Treasury official and well-known supporter of free trade, this is a wakeup call. "We know the dollar will fall at some point," he stresses, "because every time in history there have been big imbalances of this type, the fundamentals have always prevailed."
The mounting excess of U.S. importing over the amounts we are able to export, reaching new records with every report, are putting some $20 billion more into foreign hands each month. IMF projections show it could amount to another third of a trillion dollars in 1999, added to the already shocking figure from 1998. And no matter how sound a currency may be, an excess supply is sure to cheapen it, to cause the foreign holders to dump it at some point.
But although the G-7 officials seemed to respond to Rubin by commenting in a joint statement about the need for "more balanced growth among our countries to reduce external imbalances," the significant point is that they gave no sign of knowing how to achieve that. After long badgering Japan to make itself more of a market for the ailing countries of Asia, Rubin lately also urged Europe to create more jobs so it could help the United States absorb more of the world's overproduction. Japan already has cut interest rates nearly to zero and mounted large public-spending programs, and the new European Central Bank insists it has done its part with a recent interest-rate cut.
The United States, meanwhile, is fearful that troubled areas are headed for even slower business in the months ahead, sending still more products into our market. It is clear that the statements of agreement are papering over a great division among the capitals.
As a result, lots of forces are at work to make the United States retreat from more than a half-century of freer-trade policy. Some are from separate industries that press Congress to protect their interests; others are from experts who look at the overall picture and warn that the decades-long string of huge deficits is building a sharp backlash. The effect of all these forces on the administration are reflected in President Clinton's moves to protect the steel industry against a flood of imports. They are even more broadly significant in Rubin's tougher talk.
But even if it wanted to pull back from the total commitment to more and more free trade, the administration is trapped in a classic catch-22. Robert Shapiro, undersecretary of commerce for economic affairs, says, "This is a time when prosperous American consumers and businesses keep buying while our customers abroad are struggling and buying less. …