An Unbalanced View Of Trade

"Trade: Why the experts are wrong" (Editorials, June 5) suffers from an overdose of political correctness. In demonizing Japan as a mercantilist nation (surely news to the many U.S. and European companies doing business there) and in identifying the U.S. as the champion of free trade (see the U.S. Tariff Code--two volumes and 8,000-plus tariff rates), you endorse an exercise in blatant protectionism and an increasing xenophobia in the U.S. Further, you attack economic theory as saying nothing about causation in the case of low U.S. national savings rates, high budget deficits, excessive consumption, and the trade deficit.

The application of bilateral trade sanctions to Japan by the U.S. undercuts the foundation of both the previous GATT and present WTO. The correct move would have been to submit a case to the WTO before, not after, announcing tariffs, risking a trade war, and undercutting the WTO. Mixing domestic political motives with macroeconomics is never effective.

Carla Hills, where are you?

Stephen Jamison

Lakewood, Colo.

In supporting the Clinton Administration's hawkish trade policy, your editorial derides "experts" for insisting that the trade deficit is connected to the low U.S. savings rate. However, you need not be an expert to recognize that the trade balance is equal to the difference between savings and investment. This identity applies in all countries at all times, and its validity does not depend on any economic view.

Unfortunately, there is one mechanism that might allow trade policy to shrink the deficit. By forcing the Japanese to consume more, the trade hawks could directly reduce the supply of Japanese capital available to the U.S. This would raise bond yields, encourage a rise in U.S. savings rates, and depress investment spending. The net result would be a lower trade deficit. The implication is that the trade policies that you applaud can be effective only to the extent that they depress American living standards and economic growth. It is not surprising that they find little support among "experts."

Gerard MacDonell

Managing Editor

Bank Credit Analyst

Research Group


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