Senator LAUTENBERG. Do me a favor, just to be sure that I am in tune with you in terms of vocabulary. The definition in merchandise trade. Mr. SAMUELS. Goods. Senator LAUTENBERG. Not service. Nor does that get compared in deficit calculations to oil imports? Mr. SAMUELS. Oil imports are part of the goods transactions. There is a measure called current account balance which includes trade in "invisibles," Invisibles includes services, and part of that is returns on investment from abroad. The current account also includes other transfer payments. We expect that this year we will have one of our worst results on the current accounts balance. As I said, some economists have predicted as much as a $40 billion deficit, through this figure would be reduced if oil prices fall significantly. Senator LAUTENBERG. Are we standing alone on this as an international trading country? Are we worse than others resulting from the general change in working conditions, or are we kind of part of the tide here? What I'm trying to separate out from my Mr. SAMUELS. In world trade, as a whole deficits and surpluses must balance. Therefore some countries run surpluses and others run deficits. We are projecting a significant deficit for us in 1983. Senator LAUTENBERG. But the positives are being picked up essentially by all exporters; are they not? Mr. SAMUELS. Not exclusively. The Japanese are running a surplus. Senator LAUTENBERG. Where else? Mr. SAMUELS. The Europeans are running deficits on the whole. Senator LAUTENBERG. Sure they have, and we include it. Mr. SAMUELS. Some of the developing countries in Southeast Asia have some surpluses. Senator LAUTENBERG. Relatively minor, I think. Again, other than oil exports. I'm just trying to get a handle on this. Forgive me for slowing down the process. But I want to be sure. Mr. Finch, did you want to say something? Mr. FINCH. Mr. Chairman and Senator Lautenberg, if you wish, NAM has just put out a booklet going into this question in detail. We would be happy to provide it for the record. Mr. D'AMATO. If the Senator would yield, I think the point of clarification; it might be helpful, not only to this committee, but so that we can all have a better perspective on the problem, if there is a body of fact that could be made available indicating the size of the trade balance exclusive of service and oil. The question really comes down to how badly our trade balance has been impacted after factoring out oil. Senator LAUTENBERG. That is what I would like to get to. Mr. D'AMATO. I think that information should be obtainable. INCREASE IN SERVICE EXPORTS Senator LAUTENBERG. It is true, is it not, gentlemen, whoever chooses to answer that, that the services exports have increased substantially? Mr. SAMUELS. That is true. Senator LAUTENBERG. So there is a of change in product and in value of product that is taking place, as well as the raw statistic that we are looking at. And again, my purpose is to try and understand what kind of an impediment the law as it presently stands has been; or, as is discussed so often, has it not been as bad as some would like to think it is? Mr. SAMUELS. Some of these things are very hard to quantify, Senator. One of the effects of the fuzzy language of the law is to inhibit companies like Mr. Subak's from even going into certain markets, and it is hard to prove that business lost when there was not business tried because of chilling statutory language. One of the things we are hoping to do is to see to it that the United States has a clear body of law, rather than a fuzzy body of law. Senator LAUTENBERG. I agree. Thank you, Mr. Chairman. We will get that information down, please. [The booklet referred to follows:] U.S.Trade: Record of the 1970s-Challenge of the 1980s Contents Introduction V I. Manufactured Exports Are Critical to a Successful U.S. Economy Manufactured exports are the key element in overall export growth—not Figure 2. New Jobs Created by Manufactured Exports 4 Manufactured exports create jobs—30 per cent of the net private sector job 6 Figure 4. Principal Components of U.S. Trade Balance II. U.S. Industry Is Losing Its International Competitiveness Figure 5. U.S., Japanese and German Manufactured Goods Trade 8 U.S. manufactures trade balance since 1970 has fluctuated between surplus and deficit. Japan and Germany have built growing surpluses to support their economies and to pay their increased imported energy costs. Figure 6. Total World Exports 1976-81 9 World trade has stopped growing in the 1980s, thus making it even more difficult Figure 7. Manufactured Exports and Imports as Shares of Total 10 U.S. exports as a share of industrial production have nearly doubled in 10 years to over 20 percent. But unlike the situation in Japan and Germany, import penetration levels are nearly as high as exports. Figure 8. Major Sectoral Balances in Manufactures Trade U.S. trade surplus in capital goods has covered deficit in automotive and Figure 9. U.S. Share of Industrial Country Manufactured Exports, Both volume and value of exports have steadily declined since mid-1981, leading Figure 10. U.S. Manufactures Trade Balance With Major Trading U.S. manufactures trade balance has worsened with virtually all partners since 1980. Figure 11. Comparison of Real Effective Exchange Rate Index With 14 World exchange rates have moved opposite to the direction indicated by changes in economic fundamentals, effectively penalizing U.S. manufactures in both domestic and world markets. E: III. Even the Most Competitive Industries Face Tough Competition Figure 12. Exports, Imports and Growth by Industrial Product More exports have helped some industries create new jobs—but even the most Figure 13. U.S. Shares of Industrial Country Exports to World 17 Many important U.S. capital goods industries have lost shares of the world market—none has made major gains in the last decade. Figure 14. Sources of U.S. Manufactured Imports 18 Japan has the largest share of the U.S. import market, and a higher rate of growth of import penetration than other industrial countries. East Asian countries are also becoming important sources of U.S. manufactured imports. 19 Figure 15. U.S. Commerce Department Reports Overall Loss of Competitiveness in Key High-Technology Fields, 1974-81 High-technology exports have grown rapidly, but so have imports—and in many cases U.S. producers have lost shares of the world market. This makes it uncertain whether high technology industries will help us through the 1980s, and point us in the right direction for the 1990s. Figure 16. Market Shares of U.S. High-Technology Exports, 1970-1980 20 Virtually all high-technology exports lost world market shares in the 1970s. Technical Notes 21 Appendix 1: U.S. Trade Balances-Manufactures and Total Trade, 1970-82 23 Appendix 2: U.S. Trade by Manufactured Goods Sectors, 1970-82 24 (Classification by "End-Use" Categories) Introduction Achievement of long-term goals of healthy economic growth and full employment cannot be accomplished without improved U.S. international competitiveness. International competitiveness in this context means the ability of our producers to compete in both domestic and world markets. A restoration of U.S. competitiveness in manufactured goods means more jobs in an economy that may be plagued with low growth throughout the 1980s. Finally, U.S. political and economic leadership of free world nations will be decidedly enhanced by demonstrable improvement in U.S. economic performance. The U.S. Has Lost Its Competitive Edge By the 1970s, the United States had lost the economic edge which it had held over the rest of the world since 1945. The “catching up" of our foreign competitors forced the end of the Bretton Woods par value system and caused the devaluation of the dollar in 1971. But the new floating exchange-rate system did not restore American trade competitiveness in the 1970s. Other industrial countries, notably Japan, have continued to improve their trade competitiveness relative to the United States. The high price of imported energy in the 1970s placed a new premium on making manufactured exports even more competitive. Japan, certain developing countries, and to some extent Germany met this challenge, but the United States did not. In 1979 and 1980, the United States enjoyed a boom in manufactured exports. Exports increased at a rate of 23 percent per year, and in 1980 the U.S. manufactured goods surplus hit a near record of $19 billion. Some thought that the U.S. had turned the corner on trade competitiveness. But the surplus of 1980 did not signal a return to competitiveness. Rather, it was only the traditional short-term result of the depreciation of the dollar in 1977-78, bolstered by relatively strong demand in some foreign markets. Since 1980, our manufactured exports have tended to fall or grow very slowly, while imports have grown at a faster pace—and in 1982 we had a trade deficit in manufactured goods. Now we face the difficult task of achieving the goal of regaining trade competitiveness which we failed to attain in the 1970s. This is doubly difficult for a number of reasons: • Demand in foreign markets is low and world-wide recession presents dubious prospects for improvement in the short or medium term. World trade, which has grown steadily since World War II and provided demand for American exports in both developed and developing countries, has, according to GATT statistics, stopped growing. This has affected even Japan's export growth rate and may bring about changes in Japanese economic policy that are difficult to foresee. American producers selling in both domestic and overseas markets are penalized by the high value of the dollar and the undervaluation of other currencies, especially the yen, which does not reflect relative costs of production. The yen is selling at nearly the same rate as in 1973, even though productivity in Japan has increased four times as fast as in the United States, while Japanese inflation as expressed in export prices has been only 40 percent of the U.S. rate. A recent report by the New York Federal Reserve Bank estimates that by the end of 1983 the overvaluation of the dollar may reduce our annual gross national product growth by 1 to 1.5 percent. The Task for the 1980s We have learned that it is difficult enough to deal with the consequences of economic interdependence in good times. We have yet to learn how to work together to overcome the intensified strains placed on the world trading system and the international monetary system in the midst of bad times, V |