How do we solve the trade deficit?
The best, fairest suggestion I've heard of is for the United States to limit imports to a percentage of exports.To illustrate, the formula could stipulate that if country "A" sells the United States $100 million worth of goods, they would have to buy $80 million in return. In the abstract, that seems reasonable and simple. In actual practice it no doubt would be exasperatingly complex to implement and a wrenching blow to certain of our trading partners.
For example, Japan this year is expected to sell $83 billion worth of goods to the United States while only buying $26 billion in return. Obviously, Japan, if it wanted to continue to export $83 billion in goods under the 80/ 100 proposal, would have to buy $66.4 billion in return, a gain in sales for the United States of $40 billion! And Japan would still have $17 billion trade advantage.
Clearly, to attain the 80/100 ratio, Japan would also have to reduce its exports to the United States.
The United States has tried jaw-boning and negotiating with the Japanese to open their markets throughout this decade and the bottom line indicates the Japanese have really done nothing. Never mind all the press releases to the contrary. The record is quite clear.
In 1980, Japan bought $20.8 billion in exports from the United States. Now, six years later, they are only buying at a $26 billion annual rate. If corrected for inflation, the 1986 number is smaller than 1980 and nearly $3 billion of the projected figure is gold. So much for opening Japanese markets!
Meanwhile, Japan's exports to the United States have exploded from $32 billion in 1980 to a projected $83 billion in 1986. It is not hard to understand why Lee Iacocca says this country has a "doormat trade policy."
Japan has been a good ally and we in return are by far their best customers. In fact, in terms of trade, Japan will only have a $20 billion trade surplus in 1986 with the rest of the world on a combined basis. Put another way, nearly 75 percent of Japan's estimated $80 billion trade surplus this year will be accounted for by the United States.
Frankly, I don't think that is fair and I don't think many Americans do either. Japan has got to realize it must take the responsibility for reducing its huge trade disparity with the United States. If it fails to do so, it could find itself getting clobbered by the Democratic-control led Congress, which is expected to make the trade deficit a major issue next year. As a matter of fact, it may already be too late.
Obviously, Japan's economy would be thrown into a tailspin if we unilaterally established an 80/100 trade ratio. Perhaps the fairest way would be to phase the ratios in over five years. In that event, you can be sure of one thing. Japanese companies would be flocking here to set up manufacturing.
In fact, that process has already started. Current estimates are that Japanese companies will be manufacturing a million cars annually in the United States by the early 1990s. In any case, the result would be an improving trade picture for this country.
Gov. Bruce Babbitt of Arizona, a Democratic presidential hopeful, is sharply critical of the Reagan administration's trade policy.
"We can no longer do nothing and wait for things to even out in the end
because they will not even out and there is no end," he said.
I agree with Gov. Babbitt that something has to be done. To allow current trends to continue is just plain silly. We need to act now.
A fair trade bill that leads to balanced trade around the world is going to be good for everyone in the long run. The key is shifting the responsibility to precisely those countries that are running up the largest surpluses.
Obviously, there is no one way to skin a cat and better schemes may exist. I'll be writing more on this complex issue of trade but in the meantime we welcome your thoughts.
How do we solve the trade deficit?