Blueprint for New US Trade Policy

Clinton's sector-by-sector approach sends wrong signals

AMERICA in 1993 is standing on the threshold of a new era that requires a shift in thinking on trade policy. As the greatest exporter in the world, America must have a trade policy that reflects the fundamental importance of expanding trade opportunities for all US businesses to US economic prosperity and job creation. Indeed, trade must be viewed as a vital part of an overall competitiveness strategy to improve American productivity at home, which also will assure American export viability in global mar kets.

Since the mid-1980s, export expansion has become a driving force for the United States economy. From 1987 to 1992, export growth accounted for about 44 percent of US economic growth, and for even more during the recession.

Moreover, exports support 1 in 6 US manufacturing jobs and have contributed almost all of the growth in manufacturing jobs for the past eight to 10 years. Export-related industries pay 17 percent more than the average, and they employ more skilled workers and conduct more research and development than import-sensitive industries. Policies that succeed in promoting trade and increasing exports will raise the welfare of the entire nation by moving workers from lower- to higher-wage industries.

President Clinton's goal is to make America more competitive. As he formulates his trade policy, he must keep the following in mind: The best strategy is one that expands opportunities for all US businesses. A narrow, sectoral focus is not the answer, and a trade policy emphasizing import protection misses the point. One of the risks of a sectoral approach is that politics, rather than markets, govern policy. And the global trading system, on which our continued export expansion depends, is threatened by

the risk of retaliation and rising recriminations.

While the challenges facing the US in the 1990s may be similar to those of the 1980s, the remedies are different. In the past decade, American policy emphasized trade contraction as a means of easing the pressures felt by US companies beleaguered by imports and the overvalued dollar. Today, many of America's industries have sharpened their competitive prowess, and the exchange rate against most currencies no longer places US exports at a major price disadvantage.

A recent report of the Competitiveness Policy Council - a bipartisan federal advisory commission with representation from business, labor, public interest groups, and government - lays out a blueprint for a new trade agenda for the 1990s and beyond. The recommendations urge the administration to concentrate America's finite bureaucratic, political, and diplomatic resources on trade initiatives that yield the highest dividends for the nation's trading position: global growth, competitive exchange rates, m arket liberalization, export financing and promotion, and the removal of domestic disincentives to exports.

The first two, global growth and maintaining a competitive exchange rate for the dollar, are critical to US trade performance in the short run. American exports can grow only if our foreign markets are expanding and if the dollar is priced at a level that permits US firms to compete successfully.

FIRST, the administration should place high priority on developing a global growth strategy with our Group of Seven partners, especially Japan and Germany. Japan's record surplus continues to rise, and Germany's recession is dragging the rest of Europe down as well. The solution is additional fiscal stimulus in Japan, and fiscal tightening in Germany, which would lower interest rates throughout Europe. Achieving G-7 agreement on such a strategy would provide the foundation for much closer cooperation to maintain world growth, with great benefits to all US exporters.

Second, to maintain a competitive dollar the US should seek agreement in the G-7 to build on the currency-reference ranges maintained during 1987-88. Such a system would reassure American exporters that they will not once again be priced out of world markets, as they were in the middle 1980s. This would energize American firms to invest - and create jobs - domestically to meet demand abroad.

Third, new multilateral, regional, and bilateral initiatives, such as the current North American Free Trade Agreement (NAFTA), must continue to expand the international trade regime. Early conclusion of the Uruguay Round of the General Agreement on Tariffs and Trade would pave the way to a new multilateral round to deal with emerging issues such as investment and the environment, which are chilling world trade. After NAFTA, perhaps the best place to launch a trade-expanding initiative is in East Asia, wh ose countries are engines of world economic growth, crucial markets for US exports, and vital sources of capital.

Bilateral talks are especially important with Japan. A new framework building on the Structural Impediments Initiative should be revised and reinvigorated, particularly with respect to antitrust and other competition policies. In dealing with Japan, however, research has suggested that the US-Japan trade deficit is largely due to macroeconomic factors. This, in turn, suggests that a trade policy based purely on sectors is not going to be sufficient.

Fourth, a sharp increase is needed in the quality and quantity of US export credit programs, which are often crucial in determining the outcome of many major contracts, particularly in the fast-growing markets of the developing world. The Clinton administration's plan to cut the Export-Import Bank's appropriation in coming years goes in the wrong direction. Instead, the bank's annual program level should be increased to $20 billion, requiring an increase in subsidy of about $400 million, in order to meet

growing demand.

Fifth, US export-promotion efforts should be sharply increased, focused, and improved. A coherent strategy and clear priorities - which despite recent efforts still do not exist - are needed to maximize export enhancement. Moreover, funding for export promotion, currently one-fourth to one-third that of our major European competitors, should be doubled over the next five years.

Sixth, a major effort is needed to sharply reduce domestic export disincentives that block billions of dollars of foreign sales by American companies. Particularly important is to limit sharply unilateral export controls; only multilateral controls can be effective against a target country.

The Clinton administration has adopted some of these items, including efforts to get Japan and Germany to stimulate their economies.

Other items, such as export financing, are going the other way. The real question, however, is what the overarching goal of the Clinton administration's trade policy will be. A trade policy focusing only on sector-specific measures imposed at the border is not the answer. Rather, the goal should be to expand opportunities for all US exporters.

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