One of the most startling and disturbing aspects of the massive U.S. trade deficit is the dramatic change in trade with developing countries.
That's important. Though few people know it, U.S. exports to developing countries - not including the oil-producing nations - actually exceed exports to the European Community.
But this trade has suffered grievously in the past four years. In 1974, American exports to non-oil-developing countries amounted to exactly 25 per cent of all U.S. exports, exceeding imports from these countries by $5.6 billion. Last year, these exports virtually were unchanged (and had slipped to 22 per cent of the total), but imports had grown, and the large surplus turned into a $2.3 billion deficit.
Nor are the imports simply raw commodities, such as coffee, bananas and bauxite. Manufactured goods - including shoes and textiles, radios, optical instruments and steel - accounted for about half. Basic technology now moves easily across national borders, transported by multi-national companies and the availability of huge amounts of bank credit to finance development projects. The developing countries can put this technology to good use with relatively-low-paid workers.
The explosive potential of these changes is obvious. In theory, the growth of developing countries - including the rise of urban working and middle classes - should create a corresponding demand for more sophisticated goods from the United States and other developed countries.
But the theory of free trade and its practice do not always mesh. The developing countries have been notoriously slow to abandon their own formidable barriers to imports or to relinquish their export subsidies. And the developed countries are likely to try to frustrate the exports of developing countries by protecting threatened industries; the United States already has shielded its shoe, television and textile industries.
Some of the advanced developing countries also will squeeze out United States exports to other countries. C. Fred Bergsten, assistant secretary of the Treasury, recently reported that the six most advanced developing countries had increased their share of world manufacturing exports to 5 per cent in 1976, up from 1.5 per cent in 1963.
Put starkly, it's possible that the United States may soon be facing not just one Japan, but four or five. The dilemma is inescapable. Economic expansion and industrialization - with all the attendant social and environmental side effects - represent the only way for most developing countries to master poverty and population growth. But effective modernization may create hugh protectionist pressures that slow world trade.
None of this means that the Third World, minus the oil producers, is suddenly awash in wealth. Quite the opposite. But it does highlight the growing division of developing countries between those of extreme poverty and those with rapidly growing industrial sectors, often amidst wide poverty.
The table below shows the 1977 imports and exports (in billions of dollars) of the U.S.'s major trading partners among the developing nations:(TABLE) (COLUMN)Exports(COLUMN)Imports (COLUMN)to U.S.(COLUMN)from U.S. Mexico(COLUMN)$ 4.7(COLUMN)$ 4.8 Korea(COLUMN) 2.9(COLUMN) 2.4 Brazil(COLUMN) 2.2(COLUMN) 2.5 Taiwan(COLUMN) 3.7(COLUMN) 1.8 Hong Kong(COLUMN) 2.9(COLUMN) 1.3 Israel(COLUMN) 0.6(COLUMN) 1.4 Malaysia(COLUMN) 1.3(COLUMN) 1.3 All Other(COLUMN) 10.8(COLUMN) 11.3 Total(COLUMN)$29.1(COLUMN)$26.8(END TABLE)
Some of the trade shift of the past few years may reflect temporary factors. Both Brazil and Mexico, large markets for the United States, became overextended and had to reduce imports somewhat. In addition, improved harvests have led to some decline in demand (and price) for U.S. farm exports.
But other trends seem more permanent and more threatening. The sharpest growth in the non-oil-developing countries has occurred in Asia - Korea, Taiwan, Singapore and Hong Kong - and it is an open question whether the United States will be an effective competitor in these markets.
"World trade is pretty segmented," explained Franklin J. Vargo, director of the Commerce Department's Office of International Economic Research. "We sell to Latin America, Africia buys heavily from ex-colonial powers (Britain, France and Belgium) and Japan has always been the largest exporter to Asian (developing countries)."
Vargo and other officials worry that U.S. businessmen simply aren't out-hustling the competition. "In Latin America, the Japense have been raising their market share (of exports)," he said. He sees the same thing happening to the oil producers. "The Japanese, the Germans and the British have been more aggressive, and we're losing market share." But the United States still remains the largest single exporter to oil producers; last year's shipments totaled $16.5 billion.
If government worries about business, business worries about government. Specifically, it frets that American morality may hobble sales efforts abroad. Increasingly, Congress and the executive branch attempt to impose American moral standards on business conduct abroad. It's out-lawed bribes, restricted cooperation with the Arab boycott and attempted - only half-heartedly - to - to increase taxation of Americans working abroad. Some, or all, increase taxation of Americans working abroad. Some, or all, of these measures may be good for the American conscience, but not the American pocketbook.
World trade is becoming increasingly specialized, with low-wage nations threatening to grow by expanding labor-intensive basic industries. The world's developed countries can no longer simply import raw materials from developing countries and export manufactures. To survive and prosper, the developed coountries - and particularly the United States - will need to revive industrial and technological innovation. Make a better mousetrap, or, more likely, a better computer or desalinization plant, and the world will beat a path to your door.