THE first major snowstorm of the season may have socked in much of the East Coast of the United States the past day or so, but in Washington budget offices as well as some financial centers on Wall Street, there was a burst of sunny news. The nation's trade deficit finally narrowed. The dollar was stabilizing. And the White House and Congress appeared closer than ever to working out a deficit-reduction package. A few such upbeat reports, of course, do not a permanently winning Wall Street market make, any more than a snowstorm in mid-November necessarily portends a particular type of winter. And yet, it has become obvious that the exchange markets, the trade deficit, and the deficit-reduction effort are now directly related. Not just Wall Street, but overseas allies of the US, want quick and decisive action on the deficit as a key element in calming global stock markets. And they are right.
The budgeters say they are close to agreement on a two-year deficit plan that entails $9 billion in new taxes. The total package of new revenues and budget cuts would reach about $30 billion this year; $45 billion next year.
The White House and Congress should wrap up the final details as soon as possible. If economic conditions were to change dramatically, the budget pact could be fine-tuned or altered. That is why Congress has committees and the White House has a budget office.
The news on the trade-and-dollar front is also welcome. President Reagan has said the dollar has now fallen far enough. It is unfortunate that he did not indicate as much months back, before the administration began its strategy of boosting exports by pushing down the value of the dollar. It would be stretching credulity to argue that the policy has worked. Yes, the current trade deficit has narrowed, from $15.7 billion in August to $14.1 billion in September. US exports are up. Imports are slightly down.
But manufacturers still need to work harder on the quality of their products and on their marketing efforts, rather than trying to keep the competition out of the US via protectionist laws, or exchange-rate differentials, or whatever.
In short, there is still much work to do, both on the deficit-reduction front and the manufacturing front, however the markets assess the better news of the moment.