If the growing American trade deficit does not come down, it will eventually weaken the dollar and add to inflationary pressures, according to economist Edward M. Bernstein.
In a few analysis of U.S. trade figures, Bernstein says that the shift from a surplus of $9 billion in 1975 to a trade deficit of $9.2 billion in 1976 "had a severe restraining effect on the growth of the U.S. economy."
The swing of more than $18 billion in the trade balance was caused primarily by a drop in net exports, which Bernstein calculated has reduced the real Gross National Product by 0.7 per cent. In other words, if there had been no decline in the U.S. export trade, Bernstein says that the real GNP gain last year would have been 6.8 per cent instead of 6.1 per cent.
Bernstein was formerly research director of the International Monetary Fund and a U.S. Treasury official. He now heads a private economic research office in Washington.
Although Bernstein makes clear he does not support a protectionist solution, as advocated by some labor unions, he says "the United States cannot be indifferent to its trade balance"
He argues that policymakers must take positive action to reduce the consumption of oil and hence oil imports. "Beyond that," the economist says, "we might press harder to persuade other countries that they too must share equitably in the aggregate current account deficit with the oil-exporting countries, which some of them have not been doing."
In Congressional testimony last week, assistant Treasury secretary for international affairs C. Fred Bergsten complained that West Germany, Japan, Switzerland, and the Netherlands were running a $12 billion current account surplus.
At the economic summit in London on May 7 and 8, the United States will not only press these wealthy countries as a group to reduce their surpluses, but will reiterate the American demand that West Germany and Japan accept an actual current account deficit for a few years.
According to Bernstein, the trade deficit experienced by the United States in 1976 was "much too large for the present pattern of world payments." Moreover he pointed out that the shift was not "in the right direction" in that the U.S. deficit with the oil cartel increased by $7.0 billion and the deficit with Japan increased by $8.6 billion.