While Americans are understandably obsessed by the recession and the economy's long-run problems, there is one development that clearly augurs well for the future: the strong performance of the foreign-trade sector.
The dramatic narrowing of the merchandise trade deficit in November, to a mere $3.6 billion--the smallest monthly red-ink number in almost nine years--underscores the trend. While many observers attribute the improvement to weak import demand in the wake of the recession, economist James Solloway of Argus Research Corp. notes that exports were up 11.6% over November, 1990. "The remarkable thing," he says, "is that exports have remained so strong despite a global economic slowdown."
Needless to say, the sharp decline in the dollar since 1985 has played a major part in the export surge. But Solloway and others point to more basic changes, particularly the efficiencies achieved through the painful restructuring of U.S. industry in the early 1980s. For example, manufacturing productivity, or output per hour, rose by a heady 30% between 1983 and 1990--far faster than the 13% and 19% gains in countries such as Canada and Germany and not far behind Japan's 35% rise. In fact, U.S. factory productivity has actually risen a bit faster than Japan's in recent years.
What's more, U.S. industry has exhibited unusual wage restraint. Between 1985 and 1990, American manufacturers granted their workers pay raises of only 13.5%. By contrast, such increases, in domestic-currency terms, ranged from 20% to 27% in Japan, Germany, France, and Canada, and hit 46% in Britain.
Add the effect of the weak dollar to these trends, and America's newfound competitiveness really shines. In 1985, for example, Japan's and Germany's manufacturing labor costs in dollars were 49% and 74% of U.S. levels, respectively. But by 1990, labor compensation in Japan was only 14% lower than in the U.S., and in countries such as Germany, Norway, Sweden, and Switzerland it was more than 40% higher. Since 1983, factory unit labor costs in dollars have declined by 1% in the U.S., while they have risen by 48% to 85% in Britain, Japan, France, and Germany.
Many economists warn that cyclical developments may offset these favorable trends in the year ahead, as economic slowdowns in Europe and Japan hobble purchases of U.S. exports and as a U.S. recovery sucks in imports. But Solloway and Stephen S. Roach of Morgan, Stanley & Co. think such fears are overblown. They point out that more than half of U.S. export growth in the past two years has come from the emerging economies of Asia and Latin America, which remain relatively strong.
At the same time, Roach notes that the U.S. dollar is now undervalued, rather than overvalued as it was at the end of the last recession--suggesting that a repetition of the kind of import penetration that ravaged U.S. manufacturers in the early stages of the last recovery is highly unlikely. "Any way you look at it," he says, "American industry is a heavyweight competitor again."