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FED ECONOMIST SAYS U.S. COMPETITIVE IN INTERNATIONAL TRADE

 FED ECONOMIST SAYS U.S. COMPETITIVE IN INTERNATIONAL TRADE
 SAN FRANCISCO, April 1 /PRNewswire/ -- The United States is undergoing a resurgence internationally in exports and price competitiveness, but must pursue policies that will foster greater private capital formation to sustain long-term productivity growth, according to an economist at the Federal Reserve Bank of San Francisco.
 "An overly pessimistic view concerning U.S. competitiveness in world markets is unjustified," said Reuven Glick, a research officer. "U.S. exports have boomed and the trade deficit has declined in the late 1980s while measures of labor costs and productivity, particularly in manufacturing, indicate resurgent U.S. price competitiveness.
 "U.S. productivity growth in the 1980s has been comparable with, and in some cases better than, other industrial countries. The continued existence of U.S. trade deficits reflects an imbalance of national saving below investment, not any fundamental decline in U.S. international competitiveness."
 Writing in the Bank's Weekly Letter, Glick noted that the U.S. export boom has increased America's share of the industrialized world's manufactured exports from 14 percent in 1987 to 18 percent in 1990, not only restoring its share to its level in 1980, but also pushing it ahead of Japan's current 15 percent share. From 1986 through 1991, the total value of U.S. merchandise exports grew 86 percent, more than 13 percent per year.
 Glick attributed the U.S. export growth to a cheaper dollar and lower U.S. labor costs, giving U.S. manufacturers a significant cost advantage over manufacturing in other countries.
 "Since the dollar has fallen from its 1985 peak, U.S. unit labor costs have remained constant, while foreign unit labor costs in dollar terms have risen substantially," said Glick. "Costs in Japan, the United Kingdom, France, Italy, Germany, South Korea and Taiwan, for example, all have risen at more than 10 percent annually from 1985 through 1990."
 Glick added that while the U.S. trade balance has improved, it remains in deficit. He disputed the contention that unfair foreign trade practices such as export subsidies and trade protection are a major cause of U.S. trade deficits, particularly involving Japan.
 "The Japanese market has become somewhat more open over the past decade," Glick noted. "Moreover, Japan's share of changes in the total U.S. trade deficit (over the past decade) has been proportional to its U.S. trade share."
 Glick attributes the U.S. trade deficits since the early 1980s to changes in the nation's saving-investment behavior as a result of the emergence of large government budget deficits. In the early 1980s, the saving rate fell by 3 percentage points while investment fell 1 percentage point, leading to appreciation of the dollar, more expensive U.S. exports and the associated current account deficits.
 "Thus, further macroeconomic policy adjustment, ideally through either a fiscal contraction or an increase in private saving (or less ideally, through a reduction in domestic investment) is needed to accommodate further improvement in the trade balance over the long run," concluded Glick. "Improved U.S. international price competitiveness alone in insufficient."
 -0- 4/1/92
 /CONTACT: Reuven Glick of the Federal Reserve Bank of San Francisco, 415-974-3184/ CO: Federal Reserve Bank of San Francisco ST: California IN: FIN SU: ECO


MM-DG -- SF010 -- 4024 04/01/92 16:17 EST
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Date:Apr 1, 1992
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