The Impact of Imports

Every year since 1893, U.S. businessmen and farmers have sold enough goods overseas to take in more money than the nation has paid for its im ports. That trade surplus has long been the foundation of U.S. global economic power. Over the past two decades, it has amounted to $79 billion, greatly diminishing the chronic balance of pay ments deficits caused by foreign aid and investment, overseas tourist traffic and military spending.

This year, however, the long-strong trade surplus has shriveled. In March, May and June, the U.S. actually ran trade deficits, which cut the overall sur plus for the first six months of the year to a mere $100 million.

The latest figures on foreign trade have dispelled some of the gathering gloom. The Commerce Department reported that on a seasonally adjusted basis, exports exceeded imports by $282 million in September, triple the meager August surplus. The September bulge lifted the trade surplus for the first nine months of 1968 to $834 million. If the pace continues, predicted Assistant Commerce Secretary William H. Chartener, the U.S. should achieve a $1.5 billion surplus this year.

That would be a considerable improvement over previous expectations of a surplus of $1 billion or less, but it is still no cause for rejoicing. At $1.5 billion, the surplus would fall 63% below last year's $4.1 billion level. It would give the U.S. its worst year in foreign trade since a lengthy steel strike crippled exports in 1959.

A Pull from Inflation. The current problem lies primarily in the growing U.S. appetite for foreign products. Total imports have climbed 22% this year, while exports have grown only 9%. About one-sixth, or $1 billion, of the import surge was caused by U.S. labor troubles. Copper imports, for example, doubled to $600 million during the first half of this year as a result of a 37-week miners' strike. The threat of an August steel strike brought a 59% jump in iron and steel imports. Most of the blame for increased imports, however, can be placed on the seemingly insaliable U.S. consumer, who continues to spend despite increased taxes and the inflation-diminished dollar. Over the first nine months of this year, imports gained 31% in clothing, 32% in whisky (mainly Scotch), 49% for radios and television sets. Excluding duty-free trade with Canada, auto imports have soared by 70%, or $430 million. Chartener sums up the whole problem in what has become an almost generic phrase: "It's those Volkswagens."

The impact of imports on the nation's overall balance of payments has been eased by a rise in foreign investment in the U.S. During the first seven months of the year, foreigners not only poured $1.2 billion into the U.S. stock market but also bought $1 billion more of U.S. corporate bonds than they sold. Among exports, chemicals and transportation equipment (notably jet aircraft) have increased substantially, and recently foreign orders for durable goods have picked up. The threat of a mid-December dock strike has prompted many U.S. exporters to ship early. For the longer run, Washington is counting on a slowdown in domestic inflation, combined with an expansion of Western Europe's economy, to lift overseas demand still further.

End of a Cushion. Unless some such combination of circumstances brings a sharp improvement in its trade surplus, the U.S. will face a difficult dilemma. Many economists reason that the nation has moved into a new era, in which its industrial efficiency no longer provides a cushion against lower wage rates abroad. Yet if the U.S. substantially reduces the comparatively free access other countries enjoy to the world's largest market, it risks a prosperity-wrecking shrinkage in world trade. If the U.S. cooled its heated domestic economy enough to bring prices in line with those of foreign goods, the resulting unemployment would aggravate today's urban crisis and make U.S. companies less enticing to foreign investors.

As of now, many signs point to a return to protectionism. Two dozen U.S. industries are pressing for higher tariffs or import quotas on everything from shoes to glass, from steel to electronic components. Most such efforts have been rebuffed, but last month President Johnson signed a bill that more than tripled the import duty on various blends of woolens. Italy, which stands to lose $15 million in trade, is considering retaliation against U.S. exports. Other countries, of course, can be expected to do the same if tariffs on their exports to the U.S. are raised.

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