At Last, Good NewsBy
It has been a long time coming.
After eight years of staggering trade deficits, America is making rapid strides toward closing its trade gap with the rest of the world. Exports of forest products and other commodities are up so much on the West Coast that it's getting hard to book space on a Sea-Land Inc. containership. Boston-based Thermo Electron Corp. is installing pollution-control systems throughout Europe, Korea, and Taiwan. And American blue jeans, cigarettes, and soft drinks are all the rage across Europe.
Add it all together, and some forecasters now believe that the U. S. will show a trade surplus in goods and services this year, the first since 1982 (chart). Even the persistent merchandise trade deficit is shrinking: The March gap was only $4 billion, less than half what it was a year earlier.
That's a dramatic improvement, and it's no fluke. The monthly and quarterly trade figures will fluctuate, of course. In the short term especially, allied nations' contributions to the gulf war effort will muddy the numbers considerably. But there's no gainsaying that U. S. companies have taken advantage of a powerful surge in manufacturing productivity, a cheap dollar, and strong foreign demand to regain lost ground. "Look around the U. S. and you see a lot of companies doing a lot better job at exports," says John A. Young, chief executive officer of Hewlett-Packard Co.
LIFTING CLOUDS. Going forward, the fundamentals look better than they have in years. U. S. businesses no longer have to pay a much higher cost of capital than their foreign rivals do. U. S. government negotiators are proving stubborn and adroit in their battles to open markets abroad. And the economic revival of Latin America, along with the pending creation of a North American free-trade zone, should help sustain exports.
That's not to say that continued trade success won't need careful tending. Part of the recent improvement is a direct result of the recession, as U. S. consumers buy fewer imports. It's a fair assumption that once the recovery starts, consumers' appetite for imported goods will grow again. And exports could suffer if the dollar sustains its rise against the mark and the yen, or if economies overseas continue to slow.
Longer-term threats to the trade revival are even more worrisome. Japan's trade deficit with the U. S. remains stubbornly high (chart), fueling frictions that threaten political support for free trade. And U. S. spending on new plants and equipment has been weak compared with the Japanese and European investment binge of the past few years. That "may come back to haunt us over the next several years," says economist Mark Zandi of Regional Financial Associates Inc., an economic consulting firm. And much of the battle remains to be fought at home. "The real question is, can we recapture some of the American market," says Kent H. Hughes, president of the Council on Competitiveness, a Washington-based business group.
Still, the latest trade figures are a stunning reversal from the experience of the 1980s and seem to indicate that the 1990s are indeed a different era. America's merchandise trade deficit, for instance, peaked at $159 billion in 1987, while the Reagan-era consumption and debt boom helped push down the U. S. savings rate from an average of 8% in the 1970s to less than 5% in the mid-1980s. As the dollar soared to record highs, imported goods became cheap, U. S. exports prohibitively expensive.
The dollar began falling in late 1985 after the Reagan Administration hammered out an international agreement to lower its value. Initially, the low dollar was the driving force behind the revival in exports. But the staying power came from the traumatic restructuring that industrial companies underwent to become low-cost, efficient global competitors. Unit labor costs in manufacturing went from being near the highest in the industrialized world in the first half of the 1980s to among the lowest. And U. S. manufacturing productivity has risen by 37% since the end of the last recession.
General Electric Co. is a prime example of a streamlined exporter. In 1990, its U. S. exports--mainly of durable goods such as jet engines and medical imaging technology--hit $5.9 billion, up 12.7% from 1989.
U. S. companies seem determined to hold on to their hard-won gains. For one thing, they are far more international in their outlook. Sequent Computer Systems Inc. is a case in point. At its campus-like headquarters in Beaverton, Ore., President Scott Gibson has named office buildings after foreign rivers and conference rooms after overseas cities.
The maker of parallel-processing computers sends its managers to European business schools. There's more than symbolism to Sequent's efforts: International sales jumped by 64%, to $23.3 million, in this year's first quarter, cushioning the blow of a 33% drop, to $24.6 million, in its U. S. sales.
Taking a page from the Japanese, U. S. exporters have kept their prices low even in dollar terms, despite the recent rise in the dollar's value. Since the middle of 1987, for example, prices of U. S. manufactured exports have risen at a 2.1% annual rate, less than half as fast as the 4.7% rise of competing products overseas, says Edward McKelvey, an economist at Goldman, Sachs & Co.
In fact, U. S. exports have been strong enough to take some of the sting out of the recession. Overseas sales usually deteriorate in downturns. But since this recession started, exports are up 2.5%. "Exports continue to be the bright spot in the economic data," says U. S. Trade Representative Carla A. Hills.
SHARP PICKUP. The U. S. has especially benefited from Europe's preparations for economic union in 1992. The merchandise trade surplus with Western Europe in the first quarter improved to $5.6 billion, compared with $1.3 billion during the same period last year (chart). But America's deficit with Japan shows no sign of narrowing. "I'm still worried about that," says James R. Houghton, chief executive of Corning Inc. Adds a Tokyo-based executive at one of America's most globally competitive companies: "We're seeing business picking up in markets around the world but not in Japan. I don't think we'll see any dramatic improvement here soon."
Europeans, too, are unhappy with Japanese methods for spreading their commercial might. But displeasure with one trading partner shouldn't detract from the real gains many U. S. companies have made. American businesses are becoming more effective global competitors. Now the challenge is to keep it going.