We should not assume a fall in the dollar will remove the trade deficit or restore America's competitiveness in world markets. Having penetrated the U.S. market, developed marketing networks and gained product recognition when the dollar was strong, foreign producers will struggle -- and accept smaller profit margins, if necessary -- to preserve their market position when the currency advantage diminishes.
The strong dollar accelerates the flood of imports at present, and it may well camouflage another harsh reality -- the import challenge would have come anyway. There are also significant structural forces at work, which over the long term are working to integrate and internationalize the world economy. The result is to intensify competition in previously sheltered national markets for standard consumer and capital goods.
One such unifying factor has been the gradual decline of tariff barriers since World War II. Another has been the general reduction in shipping costs, resulting from supertankers, large bulk carriers, containers and wide-bodied aircraft. An International Trade Commission study last year noted that freight rates as a percent of value of manufactured imports have fallen nearly 25 percent in six years. . . .
In the competitive world economy of the 1990s, it may be more difficult than ever to boost exports, . . . with Korea, Taiwan and Brazil increasingly moving up on the product ladder to be replaced by India, China and others in the production of standard consumer goods like shoes and textiles. I ask: Is Japan or the European Community ready to open their markets and run substantial import surpluses so the United States can pay its debts?