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Reagan's strong dollar could slow US exports

By Harry B. EllisSenior economics correspondent of The Christian Science Monitor / September 24, 1981



Washington

This year's strong dollar may end up giving the United States its worst foreign trade deficit in history. From such a deficit, experts believe, a string of adverse consequences could flow, including slower economic growth in the US and a loss of jobs in the export sector.

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The overall US economy is still expected to grow in 1982 and unemployment may decline at least slightly. But progress would be greater, analysts agree, if the nation's trade deficit were not growing.

Thus the growing value of the US dollar, which appeared to spell foreign confidence in President Reagan, could boomerang and make it harder for Mr. Reagan to achieve his economic goals.

Buoyed by high interest rates in the US, the dollar this year climbed swiftly in value against other major currencies, including the Japanese yen, French franc, West German mark, and the Swiss franc.

Six months after Reagan took office, the dollar -- measured against a basket of other currencies -- had climbed on average 20 percent above the lows to which the US currency had dropped in late 1978.

Recently, as US interest rates began to ease, the dollar lost some of its gains. Nonetheless, they remain substantial.

A higher dollar makes American goods more expensive for foreigners to buy. This slows US exports, as overseas customers look elsewhere for cheaper goods.

Conversely, German, Swiss, French, and other foreign products become somewhat less expensive for Americans to buy. More foreign goods flow into the United States.

The US trade deficit with Japan, for example, is expected to climb from last year's $10 billion to around $15 billion in 1981.

Worldwide, it now appears, the 1981 US trade shortfall will substantially exceed last year's $26.7 billion deficit and perhaps the 1979 record deficit of

A broader measure of the nation's overseas business is called the "current account balance," including not only trade in goods but also services (insurance , shipping, and the like), plus some capital transfers.

In recent years the US current account balance has been healthier than the trade balance, because Americans earn money from providing services and because the current account includes income earned on direct US investment overseas.

Thus in 1980 the current account was $4 billion in surplus. This year, according to Treasury Undersecretary Beryl Sprinkel, the US current account will shift dramatically to a record deficit of $15 to $20 billion.

C. Fred Bergsten, former assistant US Treasury secretary in the Carter administration, ticks off other consequences of a super-strong dollar:

* Because many US workers produce goods for exports, a slowdown in overseas sales would add to unemployment in that sector of the economy.

* Overall economic growth might be slower than the Reagan White House anticipates, if the export sector is hobbled.

At the root of US foreign trade problems lies the price of foreign oil, which last year cost Americans nearly $80 billion to buy.

This year the US is importing less oil, so the outflow of money to pay for petroleum may drop. Still, it will be enough to throw the US trade balance deeply into the red.

Apart from oil, the US generally fares well in foreign trade. Mr. Bergsten, testifying before Congress early in 1981, spoke of the "enormous strength of the US competitive position."

Between 1978 and 1980, he said, the volume of US nonfarm exports grew twice as fast as world trade. The growth of American agricultural sales abroad was even faster.

Specific aspects of US trade vulnerability, notably vis-a-vis Japan, dominate headlines. Certain older industries, such as steel, autos, shoes, and textiles, reel before an onslaught of imports.

But, experts stress, this should not obscure the fact that basically the underlying competitiveness of US exports -- manufactures as well as farm goods -- remains strong.

Analysts foresee another type of problem in the future, as advanced developing countries upgrade the range and sophistication of their manufactures and ship them out to compete in world markets.