Us Automobile Industry Competitive DeclineEssay title: Us Automobile Industry Competitive DeclineU.S. trade deficitsAbstract (Summary)It is argued that the current US trade deficit is neither due to unfair trade practices, nor is it due to high unit labor costs and low productivity. The trade deficit reflects an imbalance of national saving below investment. US prosperity in a competitive world depends on US productivity growth and the countrys ability to maintain a stable economic environment. The US must grapple with the hard issues of devising the means to boost productivity with policies that: 1. foster greater private capital formation, 2. increase investment in infrastructure, 3. expand research and development expenditures, 4. improve the quality of education, and 5. stimulate entrepreneurial activity.
This paper will discuss our trade deficit and what it implies about our ability to compete globally.Weve had this trade deficit for over a decade. Some people, and a number of policymakers, see this as a symptom that weve lost our edge in international competition. Heres their diagnosis of the problem: Foreign competitors are able to take markets away from U.S. producers because they have some important advantages. In particular, they have lower wages, superior technology, and “unfair” trade practices.
Whats their prescription to fix the problem and return U.S. industries to competitive health? Theyd like to see the government try to manage international competition by taking a more protectionist stance and targeting certain industries for special support.
My own view is that this analysis is off the mark. I do not think the trade deficit is due to lower wages, superior technology, and “unfair” trade practices abroad. On the contrary, I think we can find the sources of the trade deficit in certain macroeconomic fundamentals–namely, our own government budget deficit and our investment and saving patterns. Moreover, I dont think the trade deficit is necessarily the best way to judge our competitiveness. There are more important factors to consider. In particular, I would point to price competitiveness and productivity.
DIMENSIONS OF THE TRADE DEFICITLet me begin by looking at just how bad the trade deficit is. First, I think its a mistake to focus too much on the most recent numbers, which havent been too good. The reason its a mistake is that the source of the problem is more cyclical than it is structural. The U.S. has been in recovery for a while now. But many of our industrial trading partners are still in recession. So the recent bulge in our trade deficit is largely due to the fact that, as we continue to grow and import more, the weakness abroad is hurting our exports.
Now let me look at the longer view. Although the trade deficit has persisted for over a decade, the situation is much better now than it was in the mid-1980s. The merchandise trade deficit fell from a peak of $160 billion in 1987 to $96 billion in 1992. Relative to GDP, it declined from 3.5 percent to 1.6 percent. The current account deficit, which includes trade in services, improved even more dramatically. It dropped from a deficit of $167 billion in 1987 to $62 billion in 1992–or from 3.5 percent of GDP to 1 percent of GDP.(1)
Why the turnaround? Because over the past six years, U.S. exports have surged. From 1986 through 1992 the total value of U.S. merchandise exports almost doubled, growing more than 12 percent per year.(2) In volume terms, exports grew almost as fast, averaging more than 10 percent per year.(3) A major source of strength in this export growth has been manufactures.(4) And its notable that this sector has continued to show strength even during the worldwide economic slowdown of the past few years.(5) So the big picture on the trade deficit is that the situation is better than it was in the mid-1980s, because U.S. exports have surged since then.
UNFAIR TRADE PRACTICESNow let me look at the problem of “unfair trade practices.” By this I mean such things as government support of selected industries through export subsidies and trade protection. The evidence is clear that virtually all countries, including the U.S., impose at least some restrictions on imports and provide government support for exports. Still, theres no evidence that the U.S. trade deficits of the 1980s were caused by greater foreign trade barriers or other unfair trade practices. First of all, between 1981 and 1987, when the deficit was at its peak, the deterioration in our trade position was pervasive. It spread uniformly and roughly proportionately across capital goods, automotive products, and
f. This imbalance of international investment (that is, of the most important or most competitive) was the main feature of all U.S. trade deficits over the 1980s—a “natural” trend.Second, the trade deficit with China slowed after 1989. It eventually began to recover, but in the middle of a prolonged period when China’s economy was growing at 5 percent and growth had declined sharply, our deficits with Great Britain, the United States, Japan, and Europe continued to grow. We were finally forced to do so because our foreign aid and trade policy were so unfair to China and our free trade policies severely discouraged the growth of the economy.The problem of „unfair trade practices, which has been a topic of growing concern and debate for years, began to become more and more obvious the following year, when U.S. Senator John McCain began asking about it. By the time he died a few years later, it was clear the U.S. government had a long path to recovery. The administration and Congress had a clear understanding of all the ways that the Government should and could make investment decisions. As such, our trade policy in our mid-1970s was very different. It did not seek direct trade of Chinese products with our neighboring U.S. counterparts but preferred to focus upon China’s production and export of goods to those countries rather than to those for whom it offered a trade advantage and a financial reward as a free alternative to imports and exports.We are pleased to report that, as part of some measures undertaken as part of an agreement with China that limited our preferential trade with its neighboring countries and to the extent it was deemed appropriate to do so, we are now required to issue an official statement on our trade policies that clearly includes these important aspects.We are also authorized to issue guidelines to both the U.S. and China to prevent misallocation and misallocation of U.S. duties, fees, and other costs in certain areas of trade, including those that would affect our competitors.The President is empowered to propose regulations to govern our trade policies. If such regulations are effective, they may be used by the Congress, the White House, and the courts to protect us. In the event Congress does not take steps to allow a change to such regulations, we may adopt or adopt and enforce compliance policies that are appropriate to the situation.Under our current law, we must comply with all rules that Congress has given us as an Act to pass legislation that promotes the private initiative and is consistent with the provisions herein.As for how we comply with them? We are not required to file the final rule with the Congressional Budget Office. This is because we depend on many of our most important provisions.As we are a country of approximately 3.45 billion people with a population of less than 7.3 billion, the Government estimates that it will spend $1 trillion a year in