Is the trade gap really a problem?

By , Staff writer of The Christian Science Monitor

Along with the federal deficit, the trade deficit is one of the leading bad guys of the late 1980s. In fact, trade in general is a central issue to most governments in the increasingly market-oriented global economy. It is the reason behind coming elections in Canada, a new source of concern in Britain, daily grist in Japan, and a campaign cause in the United States presidential election.

President Reagan signed a tough new trade act into law last month to help counteract what almost everyone considers a severe US trade problem. But is the trade gap really a problem?

Listen to George Gilder. His message is simple and provocative. Stop worrying, he says, and learn to love the trade deficit. ``We had 100 years of trade gaps as America built its economy,'' Mr. Gilder said at a conference on trade this week sponsored by the conservative Hillsdale College, in Michigan. ``And the idea that trade must be defrayed in the future is false. You don't have to contract your economy to repay foreigners.''

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Gilder is author of the best-selling book ``Wealth and Poverty,'' which served as a kind of ideological underpinning for Reagan-era tax cuts and tax reform. His forthcoming book, ``Microcosm'' (Simon & Schuster), examines the ``information economy'' he believes is rapidly emerging and that he considers a necessary cause of much of the current trade deficit.

``We will probably keep running a trade gap,'' Gilder says, ``because we are opening new frontiers of information technology.''

A trade gap, he adds, is not a sign of declining competitiveness but of an economy so healthy that it draws in goods from abroad. He points out that recent British worries about a growing British trade deficit are wrongheaded. Instead, he says, nations with healthy economies should applaud their trade shortfall - a theme President Reagan has picked up on in recent weeks.

If that sounds iconoclastic, it is. The monthly US trade deficit number roils financial markets, stalks political candidates, and generally seems to symbolize everything that is wrong with American competitiveness. The deficit hit $171 billion last year, up $15 billion from a year before. The numbers this year have appeared to improve - but the most recent data were disappointing.

Raymond Waldmann, former assistant secretary of commerce for international economic policy and now head of governmental relations at the Boeing Company, applauds the ideal of free trade but sees instead a ``relentless movement'' toward another system that he calls managed trade.

By this, Mr. Waldmann means that governments will increasingly use modest tariffs, voluntary-export restraint agreements, procurement restrictions, and export incentives. Japan's Ministry of International Trade and Industry is a past master of managed trade, he says.

Under these conditions, the US government is obliged to balance its relations with trading partners with its internal domestic economic requirements. The US might consider free trade the ideal, but since other nations are not prepared to dismantle trade barriers, it is not prudent for the US to go free trade unilaterally.

US industry could be irreparably damaged by predatory trade practices from abroad. Ultimately, Waldmann says, this could present a national security problem.

But to free-trade advocates, national security is a cop-out. Ultimately, says economist Richard Ebeling of Hillsdale, every product in a nation's economy - from oil to steel to shoes for soldiers - affects national security.

It is too expensive to subsidize every industry just in case. So Dr. Ebeling says legitimate security concerns can be dealt with through a system of strategic stockpiles. Meanwhile, the cheaper goods from abroad free US financial resources to be spent on other things, thus enriching the economy and perhaps preserving important domestic resources such as oil.

Finally, Ebeling notes, nations that are interdependent because of free trade are less likely to go to war.

But to Anthony Harrigan, president of the US Business and Industrial Council, a Washington-based business lobby, that is hopeless idealism.

``Other countries won't play by our rules,'' Mr. Harrigan says, and the US is ``in danger of losing control over its economy.'' The US won't be able to export itself out of its huge trade deficits, he says, so the only recourse is trade protection.

His organization, he says, doesn't ``consider protectionism a dirty word.'' Trade must not be so much free, he says, as fair.

And that deeply disturbs Yoshiji Nogami, a trade negotiator with the Japanese Embassy in Washington. ``People tend to say [that] whatever is different from the American system is unfair,'' Mr. Nogami says. ``But it seems to me that this fair/unfair concept is very whimsical.''

So while George Gilder confidently says it is all right to quit worrying about the trade gap, there are plenty of people who will continue worrying - and worrying plenty deeply.

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