The Liability Explosion and American Trade Performance: Myths and Realities
ROBERT E. LITAN
O ne of the hottest games in Washington policy circles in recent years has been the search for the "root causes" of America's trade deficits. Although various villains have been identified, none has yet been convicted. Many macroeconomists blame the deterioration in the trade balance on a significant decline in the national saving rate, which has required imported goods and foreign money to sustain domestic investment. Other analysts acknowledge the importance of the drop in savings but also contend that the United States trade deficit has grown because American businesses are less "competitive" than they once were.
The arguments by now are familiar. Obsessed by quarterly profits, corporate managers in the United States allegedly____________________
ROBERT E. LITAN is a senior fellow in the economic studies program at The Brookings Institution, where he directs the Center for Economic Progress and Employment. He wishes to thank Brian Friedman for excellent research assistance and Henry Aaron, Robert Lawrence, Peter Schuck, and Clifford Winston for their valuable comments on an earlier draft of this chapter.