Dealing with the United States trade crisis

THE most important issue before our country today is the United States trade crisis. The red-ink trade figures are splashed across the newspaper headlines every month. This year our trade deficit is expected to reach $150 billion -- one-third of it with Japan. Members of Congress are starting to panic, and draconian stopgap solutions are being thrown into the hopper. We have all heard and read many speeches and editorials focusing on the causes of our crisis in trade competitiveness. Frequently cited as culprits are the high value of the dollar and Japan's nontariff barriers. Both of these are extremely important in the trade equation.

But in my judgment, a critical part of the puzzle is being overlooked. Even if the value of the dollar declines significantly and Japan eliminates all of its nontariff barriers tomorrow, American consumers will continue to import Japanese products in large quantities. If we are going to understand the nature of our competitiveness problem, we have to recognize that hidden in the trade deficit figures is a national buyer's strike. In the US, domestic producers are losing their share of the market because of the baby-boom, Yuppie factor.

We must consider the trade crisis on two fronts: first, what is happening in the US market; and second, what is our competitiveness situation in exporting abroad. Until we separate these two markets analytically, we will continue to miss the fundamental source of America's problem, and we will fail in our prescriptions.

When you look at spending habits and who has the disposable income, it is the baby-boom generation. And for this segment of the market, price is not the determining factor in a buying decision. Rather, the consumer makes a subconscious long-term evaluation of price based on how long the product is going to last, its aesthetic and prestige value, and its reliability. In short, quality is the No. 1 determining factor.

The characteristic that runs throughout these cases is a commitment to quality and to effective advertising campaigns. Baby-boomers don't have time for comparison shopping. They will buy a product based on the experiences of their colleagues and based on glimpses from advertising campaigns.

If we continue to approach our trade problems with Japan on the premise that our problems are caused solely by the value of the dollar and trade barriers, the results will be the same as if we were ostriches with our heads in the sand. Our trade deficit with Japan is not a recent phenomenon. The US has run a trade deficit with Japan every year since 1966.

Solutions to our competitiveness problem at home have to come as much from industry as from Washington. Companies are going to have to pay more attention to the details embodied in a good-quality product. And company executives are going to have to devote more of their energies to winning the hearts and dollars of the baby-boom generation.

We are facing a tough challenge of worldwide industrial competition, and we have to mobilize our people to understand that. As Kenneth Butterworth, president of Loctite Corporation, put it: ``The attitude in this country is too much `Thank God it's Friday' and not enough `Thank God it's Monday.' ''

If we are going to compete successfully, productivity gains have to be coupled with quality control. Japan has fine-tuned the quality control process in every step of the assembly line.

The challenge overseas is different from the one confronting our domestic market. Nowhere do we find the same baby-boom demographics as we have in the US. The consumers and product needs are much different. Price is the most significant factor when 70 percent of the world's consumers are living in developing countries. The value of the dollar is key, as are our government policies that affect export competitiveness and influence market access. The strength of the dollar over the past few years has indeed been extremely costly for many American industries. Another important source of our trade problems has been the intransigence of the Japanese in removing trade barriers for US products.

US international competitiveness is being challenged on two fronts. The trade deficit with Japan is symptomatic of a failure by American companies to anticipate the preference for quality and performance of the baby-boom generation. Typical knee-jerk responses to attempt to eliminate or curtail Japanese competition by protecting industries cannot in the long run succeed in maintaining our competitiveness at home or abroad.

Rep. Toby Roth (R) of Wisconsin, the ranking Republican of the House Foreign Affairs Subcommittee on International Economic Policy, is on the House Banking Committee.

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