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.
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.
Looking at price competitiveness, he figures US manufactured exports rose an average 29 percent in price during 1980-84 against the export prices of Germany and Japan.
This contributed to a 17 percent drop in the volume of US manufactured exports over the period. At the same time, manufactured imports into the US increased 65 percent in volume.
Imports of office machinery were up 55 percent last year, consisting mostly of partly completed electronic components from the Far East. Foreign producers took 40 percent of the domestic market for machine tools last year.
Similar trends took place in photocopying and telecommunications equipment.
The dollar's steep appreciation has prompted US high-tech companies to move labor-intensive operations abroad more quickly, Bernauer says.
What's to be done about the increasing import penetration?
C. Fred Bergsten, director of the Institute for International Economics in Washington, contends that to avoid a further wave of protectionism, the ``35-40 percent overvaluation'' of the dollar must be slashed.
He figures a reduction in the US federal deficit will help. Also, Japan should faithfully open up its markets to imports, as promised by Prime Minister Yasuhiro Nakasone. Another round of global trade negotiations should be launched to reduce trade barriers.
In addition, Mr. Bergsten would like the industrial nations to manipulate capital flows to weaken the dollar.
Japan and Europe could put an ``interest-equalization tax'' on investments by their nationals in the US, as the United States did in the 1960s in an effort to strengthen the dollar.
Japan could launch a program of heavy borrowing in the US. The proceeds from such ``Nakasone bonds,'' on the order of perhaps $10 billion or so, should be converted into yen to strengthen its exchange rate. Europe could do something similar, Bergsten says.
Bergsten was a top economist in the Treasury when President Carter borrowed abroad in a successful effort to stabilize the dollar in 1978-79. When these bonds were redeemed, the Treasury made a profit of about $1 billion.
Bergsten believes there is a similar profit potential today for government treasuries if they choose to nudge the dollar down by financial measures.
The United States could engage in foreign- exchange manipulation by borrowing in foreign currencies and selling a similar amount of dollars on the foreign-exchange market. If the foreign exchange it has borrowed becomes more valuable, the Treasury will make a profit.
Bergsten suggests some other measures to weaken the capital inflow into the US, and thus weaken the dollar. But the Reagan administration, with its reluctance to interfere in markets, has shown no inclination to take up his suggestions. Meanwhile, the trade balance continues to deteriorate. Chart:Import penetration ratios* Industry 1968 1981 1984 (est.) Textile mills 5.2 5.9 6.4 Apparel 4.2 13.7 20.8 Lumber and wood 8.3 8.7 11.0 Paper 5.8 6.4 7.4 Chemicals 2.3 4.4 5.6 Petroleum, coal 3.9 6.8 10.2 Rubber, plastics 3.0 7.7 8.3 Leather 8.9 24.7 44.7 Primary metals 8.8 14.5 15.0 Fabricated metals 1.7 3.9 5.0 Nonelectric machinery 4.0 3.9 12.8 Electric machinery 4.0 8.0 16.9 Transport equipment 5.7 14.8 16.2 Instruments 4.9 11.3 12.6 All manufacturing 4.3 8.4 10.7 *Imports divided by total industry shipments plus imports. Source: Citicorp.