THE AMERICAN economy is unquestionably beginning to recover at last from this long and costly recession. There are signs that the early stages of the coming expansion may be unexpectedly powerful. But substantial threats to this recovery lie in waiting some months up the road. Those to which Americans generally pay the least attention, but ought to pay the most, concern this country's trade with the rest of the world. If it does not begin to pick up--that is, if the recovery does not spread rapidly to the other trading countries, particularly in Europe--steady growth is not likely to continue here.
As it goes into this next phase, American trade is burdened by a dollar that is in some degree overvalued. That's the result of high interest rates here, and anxieties abroad that send a heavy flow of foreign funds to safe American havens. The torrent of foreign investment will probably diminish as the year goes on. But interest rates will continue to be crucial. Since they are related to the federal deficit, that's another reason for Congress not to take a vacation from fighting the deficit this spring--as, unfortunately, it seems inclined to do. Getting the interest rates down is the single most important thing that the United States can do for its own economy this year, and also for every other market economy in the world.
To protect this recovery, the United States also has to keep resisting the temptations to restrict trade. Martin Feldstein, the chairman of the president's Council of Economic Advisers, has been making that point vigorously. "I worry that protecting steel or lumber from lower price imports not only hurts American consumers," he said, "but also reduces the viability of American industries that use steel or lumber as basic inputs." Subsidies for exports can help some American exporters only at the expense of other American industries--doing, in the end, more harm than good.
But Mr. Feldstein's speeches are the exceptions. The odd thing about public discussion of economic policy, and the recovery, is that you very rarely hear references to the rest of the world. Most people, including those who ought to know better, talk as though the American economy were on a planet of its own. Political debate always deals more easily with causes and effects that lie comfortably within the reach of American policy and American law. No political leader likes to concede that his own success may depend on decisions made in other capitals. But the reality is that each of the industrial democracies, including this one, now requires reliable access to growing markets abroad to ensure its own economy's growth.