Can the U.S. Still Compete?

In one industry after another, U.S. manufacturers are finding their markets at home and abroad besieged by aggressive foreign firms. Some 10% of the autos, 12% of the steel, and 31% of the shoes now reaching U.S. consumers are imported. "We simply can't compete on price," says Chairman Russell De Young of Goodyear Tire & Rubher Co., explaining bluntly why 300,000 of the 467,000 motorcycle tires sold in the U.S. last year were foreign-made.

Lately the inability to compete has been reflected ominously in the nation's traditional trade surplus--the excess of exports over imports--which has been the cornerstone of U.S. global economic power since World War II. From a peak of $7 billion in 1964, that surplus shrank 41% to $4.1 billion last year. So far this year, the record has been even worse. The first-quarter surplus fell to an annual rate of only $731 million, the lowest in 31 years; during March, the U.S. trade balance actually ran $158 million in the red.

The March deficit was caused in part by the long copper strike, an eleven-day New York dock strike, and by steel stockpiling as a hedge against a possible steel strike in August. While the outlook for the year as a whole is by no means so dismal--Washington has all but abandoned hope of reaching President Johnson's goal of fattening the U.S. trade account by $500 million in 1968. Says a top Commerce Department official: "We'll be lucky if we can hold the '67 surplus."

Unless the U.S. can offset this prospective shortfall, it will lead to a rise in the dollar-weakening balance of payments deficit and renewed peril for the free world's monetary and trade system. Chances of improvement seem slim. Congress has shelved the President's proposals to curb tourist spending abroad; rising costs of the Viet Nam war could forestall Government promises to curtail its spending overseas. Thus, it was hardly a surprise last week when the free-market price of gold --a seismograph of foreign anxieties over the dollar--inched up to $39.60 per oz., its peak since the April 1 reopening of the London gold market.

Chief source of the current trade problem is the U.S. economy's galloping inflation, which prices U.S. goods out of foreign markets and attracts imports to meet internal demand. Last year the U.S. inflation rate outpaced that of most other big industrial countries. With U.S. prices rising most recently at the rate of 4.8% a year, highest since the Korean War, imports jumped by 19% during the first quarter of this year even though 16% of U.S. factory capacity stood idle.

Well aware that the U.S. trade plight may only strengthen the protectionist mood in Congress, 16 industrial countries* last week offered some extraordinary help. They volunteered to speed up a portion of their scheduled Kennedy Round tariff cuts while allowing the U.S. to delay its own cuts. This tariff advantage would give the U.S. trade balance a lift through 1969 estimated at $300 million.

The favor came with enough strings tied around it to make U.S. acceptance dubious. The offer is conditional upon U.S. abstention from any new restrictions on imports or subsidies for exports. And several of the 16 countries insist that Congress must also repeal the so-called American Selling Price system for fixing tariffs on such items as benzenoid chemicals, sneakers, canned clams and woolen knit gloves.

Soft in the Middle. Like an aging athlete whose stomach muscles have turned to flab, U.S. trade shows a soft middle. Exports consist heavily of raw materials (coal, grains and soybeans, for example) and the high-technology output of the world's most research-minded corporations (computers, aircraft, electronics). Between those extremes, chronic trade-balance weakness is suffered by at least 122 manufacturing industries. Among them: steel, paper, food-and-drink, glass, textiles, apparel, lumber, leather, shipbuilding, autos, watches and sporting goods. In 1-966, those 122 provided 35% of the nation's industrial jobs, but they ran up a hefty $7.5 billion trade deficit. Says Finance Chairman Robert C. Tyson of U.S. Steel Corp.: "America generally has become less competitive than it was. Companies of other nations, frequently with American-aided modern capacity, often with government subsidy and protection, and universally with lower wage rates, can now effectively compete with American companies."

Some economists dispute the overall importance of cheaper labor in other countries. Still, workers earning as little as 150 an hour have helped South Korea gain a big foothold in transistor manufacture--a business that is also growing in such low-pay spots as Hong Kong and Mexico. Foreign countries have grabbed half of the domestic movie-camera market, and all but two U.S. manufacturers (Kodak and Bell & Howell) have dropped out of the picture. Cummins now sells most of the diesel-engine output of its British plant in the U.S., while all of RCA's tape recorders and 80% of General Electric loudspeakers are made in Japan. Other advantages of U.S. industry are gradually fading. The growth of the Common Market, for example, gives the world another region where economies of size are possible. To make matters worse, complains Chairman George Moore of Manhattan's First National City Bank, "too few people are interested in exporting. The world has a hell of a time buying American products."

One reason is that the 625 largest U.S. companies account for more than half of the nation's industrial exports. To encourage smaller firms to hunt for overseas business, the Commerce Department has been revving up official trade missions. Last week some 40 U.S. executives hustled to Sydney and Melbourne with the help of Pan American to search for orders for everything from automatic controls to waste-disposal systems. "We can't sit on our duffs and wait for this business to come to us," said Chairman John R. Kimberly of papermaking Kimberly-Clark. Such efforts can pay off handsomely. After Illinois-based Ideal Industries Inc., a leading maker of wire strippers and connectors, began exhibiting its products at the Hannover Fair last year, its sales in West Germany quadrupled.

Diminished by Self-Discipline. Although industry is far from blameless, many of the nation's gravest trade ailments have been concocted in Washington. The trouble consists of federal deficits, easy tolerance of wage increases that outstrip rising productivity, and the pursuit of economic growth at the expense of stable prices. Even so, the U.S. still has the world's largest and most efficient economy, along with an impressive lead in finance, marketing and much technology. If the nation has the self-discipline to bring its inflation-bent economy under control, the worst of its difficulties with foreign competition should slowly diminish.

* Japan, Canada, the Common Market Six and all eight members of the European Free Trade Association.

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