Will Exports Lead US Out of Recession?
FOR the first time, it may be that exports will lead the United States out of recession later this year. Such ``export-led growth'' has happened often in other industrial countries. In West Germany, France, and Japan, for example, factories have cranked out so many machines, tools, and consumer goods for shipment abroad that it has picked up domestic momentum in earlier recessions.
``If America can successfully focus on selling abroad, economic recovery can come more promptly and smoothly,'' writes C. Fred Bergsten, director of the Institute for International Economics, a Washington research group. ``If it cannot, stagflation may persist and America will fall steadily behind its global competition.''
In the past, the US possessed a relatively self-sufficient economy compared to that of most industrial nations. Exports and imports weren't too important. But over the past few decades, exports have become a more significant proportion of US economic activity.
Kevin Logan, chief New York economist for Swiss Bank Corporation, calculates that thriving exports could add about 1 percent of real growth to national output this year.
``That's quite a help,'' he says.
The three economists on President Bush's Council of Economic Advisers, in their annual report issued earlier this week, also count on exports to give the economy a boost.
What prompts all these happy expectations for exports is the devaluation of the US dollar in the past year or so. Robert Lawrence, an economist with Brookings Institution, another Washington think tank, notes that the dollar has dropped in value against other major currencies by about 10 percent since last June. He reckons that will boost US exports over the next year or two by about $75 billion.
Indeed, that should take the US ``within a reasonable range of balance'' in its international payments by 1992 or 1993, Mr. Lawrence says. ``It's a whole different world.''
Not all economists are that optimistic about closing the balance of payments deficit that has been troubling the US for a decade, making it the largest debtor nation in the world. Martin Feldstein, a Harvard University economist, says a further devaluation of the dollar will be needed to restore balance. One reason is that exports must grow not only enough to cover imports, but to provide income to service its massive foreign debts.
However, in a study just published in the Brookings Papers on Economic Activity, Lawrence finds the financial burden of the $600 billion in US foreign debt surprisingly small. With world real interest rates (after inflation) amounting to about 3 percent, the real interest payments (after inflation) come to $18 billion, or less than 0.4 percent of US national income.
``Moreover,'' writes Lawrence, ``additional earnings from US net foreign direct investment [plant, equipment, offices] have been sufficient to offset the real cost of additional US borrowing.'' Apparently, foreigners have not been getting much of a return on their investments in the US, certainly compared to what US corporations have been managing on their investments abroad.
US export growth has already moderated the recession in the US. The decline in national output at a 2.1 percent annual rate in the fourth quarter of 1990 would have been about twice as bad except for an increase in net exports. That gain in net exports was partially accounted for by a drop in oil imports.
Some economists argue that during the high-dollar period in the mid-1980s American firms lost some of export capacity and foreign firms entrenched ``beachheads'' in the US. So, these pessimists said, a weaker dollar wouldn't improve the trade balance much.
Not so, says Lawrence. His analysis finds that US trade flows do respond to exchange rate shifts. Further, contrary to conventional wisdom, US-Japanese trade has actually adjusted more rapidly to the devalued dollar than has either total US trade or trade with Europe alone.
Dr. Bergsten wants the US to prevent a rebound in the dollar and adopt ``a new mind-set of export orientation by US industry and government'' to assure export growth.