Imports snatch wider hold on US industry. Among one analyst's remedies: cut value of dollar, reduce federal deficit
Imports have been hitting not just the steel, automobile, textile, and shoe industries in the United States. They have been invading the markets of a host of other American industries, too. ``Now import penetration is reaching far and wide -- notably into the high-tech sector,'' notes Kenneth Bernauer, a Citibank economist.Skip to next paragraph
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For example, imports in 1981 took 3.9 percent of the American market for nonelectrical machinery. Last year it was 12.8 percent. In electrical machinery, import penetration has moved from 8 percent to 16.9 percent. The list could go on (see table).
Import penetration will be up again this year, Mr. Bernauer figures. He is expecting the trade deficit to increase from $108 billion in 1984 (with the cost of insurance and freight deducted from imports) to around $135 billion this year.
First-quarter numbers for the gross national product, released Tuesday, show imports up at a 31.4 percent annual rate, with exports down at a 6.1 percent rate.
One big reason for the import invasion is, of course, the strength of the dollar. It has made imports far more competitive. Another is the vigor of the recovery in the US (at least until the last quarter), compared with that in Western Europe. A fast-growing economy draws in more imports.
The dollar has weakened in the last few days after the Federal Reserve dropped its discount rate to 7.5 percent from 8 percent, following a decline in other interest rates.
Thus the financial reward for foreigners investing in American certificates of deposit, government securities, financial paper, or whatever, shrank a little.
By Wednesday, the dollar was off more than 7 percent against the West German mark and some 13 percent against the British pound from its peak in February.
But it remains strong compared with a year ago. And, says Bernauer, it takes three or four quarters for a weaker dollar to affect the trade balance.
In the meantime, the fact that imports cost more and exports earn less will probably worsen the deficit temporarily.
Citibank also expects economic growth in the US to snap back to a 5 percent annual rate in the second half of this year, faster than the growth expected in Western Europe. This too could enlarge the trade deficit.
American manufacturers have been busy introducing new technology and management techniques to keep competitive. Between 1980 and '84, labor productivity in US manufacturing rose at an annual average of 4 percent, well above the 2.9 percent in Japan and 3.1 percent in Germany.
US wage settlements in manufacturing, however, have been running higher, too. Expressed in dollars, hourly compensation rose at an average annual rate of 6.7 percent during 1980-84. That, notes Bernauer, is somewhat faster than Japan's 4.7 percent (expressed in yen) and Germany's 4.8 percent (in marks).
Balancing these two elements, growth in labor costs per unit of manufacturing was not significantly different in Germany and Japan from what it was in the US.
But the dollar rose more than 50 percent during those four years against the DM and about 5 percent against the yen.
Adding this factor in, unit labor costs measured in dollar terms fell one-third in Germany and stayed virtually flat in Japan. But they shot up 11 percent in the US, Bernauer reckons.