Industrial expansion: when it's `exported' overseas, US is a loser

If you bought a videocassette recorder for Christmas, you contributed to the growing trade imbalance. All or almost all of the popular VCRs are made in Japan. Later this year the Japanese will be adjusting to new competition from the South Koreans. But whether your VCR comes from Japan or South Korea, in the United States it will still be an import. The problem this poses for the US economy was highlighted last week by the report for factory orders. During January they declined by 0.9 percent. This followed a smaller decline in December. The largest portion of the decline was in nondefense capital goods, which were off by more than 13 percent.

Businesses invest in capital goods to increase their total production capacity. Capital goods are not that part of a company's orders that are used to push out more product next month; they are semipermanent. They represent faith in the future of whatever one is in the business of making.

The decline in orders came during a month when consumer income and expenditures rose. One should not expect such orders to correlate on a monthly basis with consumer expenditures, but what the figures indicate to some economists is that increasing numbers of companies are shifting more plant and equipment overseas -- both because production costs there are cheaper and because they don't have to sell to other countries in overvalued US dollars.

If this is a correct assessment, it is not a healthy sign for the American economy. When the Commerce Department adds up the elements of the gross national product (GNP) each quarter, it looks at personal consumption expenditures, business inventory growth, business capital spending, government spending, and the excess of exports over imports. With that excess now being a deficiency of more than $100 billion at annual rates, you can see how that VCR made in Japan and bought at Macy's or Marshall Field's subtracts from GNP. It is easy to understand that the VCR that you bought paid someone's wages in Japan, not in the US, and those wages were spent in Japan, not the US.

Somewhat the same impression is given by the February unemployment numbers released Friday. Unemployment during the month fell from 7.4 to 7.3 percent. During the month 255,000 new jobs were added in the service sector, but there were 137,000 fewer jobs in the goods-producing sector. The latter includes manufacturing, and that is where the competition from imports is directly felt.

The attractiveness of Toyotas, VCRs, and European china is fine, as long as the US is selling enough abroad to more or less balance these imports. But farm products, at times a major export, are more and more priced out of foreign markets. The US lead in many high-tech items remains solid but is also being challenged on many fronts. Part of the trade-deficit dilemma stems from an ongoing global adjustment in which many US workers will need to learn new skills -- certainly if this country is to allow other nations greater access to our markets.

What the present trade figures show, though, and what last week's figures for durable orders and unemployment suggest, is that too many American manufacturers are beginning to question whether domestic market growth calls for further US expansion. This is why there is more talk in Washington about making sure foreign markets are as receptive to US goods as US markets generally are to foreigners. But there would be a lot less concern about trade restrictions if the biggest restriction of them all -- the high dollar -- were to begin an orderly retreat.

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