[Congressional Record Volume 140, Number 75 (Wednesday, June 15, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: June 15, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                           WASHINGTON REPORT

                                 ______


                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                        Wednesday, June 15, 1994

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, June 15, 1994 into the Congressional Record:

                         The U.S. Trade Deficit

       During the past year, the U.S. economy has improved on 
     several fronts. Economic growth is up, productivity is up, 
     the federal budget deficit is down, and the unemployment rate 
     is down. But there has been little improvement in one area--
     the trade deficit.
       Last year Americans bought $132 billion more in goods from 
     other countries than they bought from the U.S. About $60 
     billion of this deficit was with Japan alone. Our trade 
     deficit is lower than it was in the mid-1980s, but it is 
     still much higher than it was a few decades ago, and the 1993 
     deficit was 37% larger than the previous year's. What are the 
     causes of this deficit? What are the implications? How 
     serious a problem is the trade deficit?
       Causes.--Several factors have caused the U.S. trade 
     deficit. First, over the past several years other countries 
     have narrowed the U.S. lead in productivity and technology. 
     That means they need to buy less from us and have more to 
     sell us, thus driving up our trade deficit. A second factor 
     is the value of the dollar. During the 1980s the U.S. dollar 
     reached its highest level relative to other currencies in 
     decades, although it has come down some since then. A higher 
     value for the dollar makes U.S. goods more expensive overseas 
     and also makes foreign products cheaper in the U.S.--thus 
     boosting our trade deficit. Third, the large federal budget 
     deficit also contributes to the trade deficit. The budget 
     deficit has been covered largely by huge inflows of foreign 
     capital attracted by our relatively higher interest rates. 
     That keeps demand for the dollar high, which increases its 
     value and makes U.S. goods more expensive abroad. A fourth 
     factor is the low U.S. savings rate. When U.S. investment 
     demand exceeds national savings, we turn to foreigners to 
     fill the gap--and that means massive imports of capital from 
     abroad in exchange for U.S. assets. In the 1950s and 1960s, 
     the U.S. had considerable trade surpluses because we had more 
     savings than investment. Fifth, we have inadequate market 
     access in other countries. America has large trade deficits 
     with Japan and China. Japan has the world's second-largest 
     market, after the United States, but Japan does not import 
     manufactured goods at anywhere near the rate of other large 
     economies. And China, which is not a member of the General 
     Agreement on Tariffs and Trade (GATT), does not adhere to the 
     same principles of free and open trade that the U.S. does. A 
     sixth cause of the trade deficit is the fact that the 
     economies of Japan and Europe are growing at slower rates 
     than ours. When countries are not growing, their appetite for 
     imports--including U.S. imports--declines. Likewise, when 
     economies are growing, as the U.S. economy did last year, 
     they tend to purchase more goods from abroad.
       Significance Of The Problem.--There are two different views 
     on the seriousness of the U.S. trade deficit. The first is 
     that the trade deficit is not a major problem. A large inflow 
     of imports helps keep our inflation rate low, since more 
     imports mean greater price competition. This competition 
     means greater choices and cheaper goods for consumers. Our 
     deficits have also provided developing countries a market for 
     their goods so they in turn will be able to purchase more 
     imports.
       The other view contends that the large trade deficit hurts 
     U.S. companies and costs American jobs. This view holds that 
     the trade deficit is a serious problem because it indicates 
     that Americans are buying more foreign products instead of 
     U.S. products, thus creating jobs in other countries. That 
     means lost profits in the U.S. and fewer good-paying jobs for 
     less-skilled workers.
       Goods And Services.--The debate has been complicated by 
     different ways of measuring the trade deficit. The 
     merchandise trade balance, which measures trade in 
     manufactured goods, is the figure usually cited as the U.S. 
     trade deficit. But the current-account balance is a broader 
     measure that includes not only manufactured goods but also 
     services such as tourism and insurance. This gives a more 
     comprehensive sense of overall U.S. trade performance, since 
     the U.S. economy is dominated by service industries. In fact, 
     nearly 80% of Americans work in service industries, 
     accounting for about 70% of the nation's gross domestic 
     product. The U.S. current-account figures show a much smaller 
     trade deficit of $76.8 billion in 1993, some 42% less than 
     the merchandise trade deficit of $132.4 billion. To put this 
     in perspective, the $76.8 billion current account deficit is 
     about 1% of the size of the overall U.S. economy.
       Policy Prescriptions.--While some economists say that the 
     trade deficit is a non-problem, my view is that it is serious 
     but not devastating. There is no reason to panic about the 
     trade deficit, but we would be better off getting it down. 
     The basic problem is that it mortgages future U.S. income to 
     foreigners. We must send huge payments abroad on what we owe 
     them, and could be exposed to financial crises whenever the 
     confidence of foreign investors in the U.S. economy is 
     shaken. A large trade deficit tends to feed strong feelings 
     of economic nationalism here at home and increase the risk of 
     a trade war.
       Several steps should be taken to improve the overall U.S. 
     trade performance. We should put a heavy emphasis on 
     increasing exports. This has been the approach of the Clinton 
     Administration, which has supported both NAFTA and the GATT 
     in an effort to reduce overall world trade barriers and has 
     implemented several new export promotion programs. We should 
     also demand that specific trading partners provide the same 
     access for U.S. goods as we provide for their goods. Market 
     opening negotiations with Japan, for example, we continuing. 
     We should try to persuade people to switch their demand from 
     imported to U.S. goods. In addition, we should continue to 
     reduce the federal budget deficit in order to reduce domestic 
     demand, and take steps to encourage greater national savings. 
     Finally, we need to give attention not just to the trade 
     numbers but also to what we are exporting. Reducing the trade 
     deficit by selling more computer chips would do more to 
     improve U.S. competitiveness and support high-paying jobs 
     than would exporting more potato chips. Improving our 
     competitive position starts with education and training as 
     well as technology development.
       There is no simple solution to reducing the trade deficit. 
     It has worsened over the years due to a variety of factors, 
     and it will take efforts on several fronts to bring it down.

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