When Congress anounces nes next week, it intends to take up foreign trade and protection from imports. Citing a trade deficit that will probably be well over $140 billion this year, the Senate majority leader, Robert J. Dole, said the other day that he expects votes on protectionist legislation by mid-October. But that tremendous trade deficit is not the cause of the trouble in the American economy. It's a result.
Protection and the drive to keep out imports won't help prevent further losses of jobs in American manufacturing. The trade deficit is mainly caused by the dollar's high exchange rate. Dollars spent on foreign goods push the dollar downward. Cutting off imports by legislation will push the dollar higher. That will make American exports less competitive than ever in foreign markets.
Congress keeps avoiding that reality. The United States is still by far the world's largest exporter. It will sell more than $200 billion worth of goods abroad this year. That represents a lot of American jobs, and protectionist legislation is a threat to them. Tariffs and import quotas don't prevent unemployment. They only redistribute it.
Any real solution will have to deal with the dollar's exchange rate. It has dropped since the peak late last winter, but the drop so far won't have much effect on the trade balance. Trade flows generally reflect the exchange rates a year or more earlier. Even after six months' decline, the dollar now stands almost exactly at its average 1984 value.
To get it down safely will require two things. It will require a far lower budget deficit in this country. And it will require faster growth of internal demand in the major economies abroad -- meaning primarily Japan and West Germany.
The American trade deficit is an American responsibility. It is being generated not by obscure financial technicalities but by an American inclination in the 1980s to consume a great deal more than the country produces. But Japan and especially West Germany are currently depending heavily -- much more heavily than is wise, in their own interests -- on their exports to the United States for their prosperity. They know that the present surge of American overconsumption can't last, but they seem incapable of any initiative toward a better balance -- just as Americans seem incapable in this decade of living within their means.
One of the New York banks, Morgan Guaranty, put it succinctly in a recent survey: "With the industrial nations unwilling to address the huge U.S. trade imbalance in a constructive manner, the risk continues to grow that political pressures will force a destructive solution by stepped-up protectionism." If you doubt it, you have only to listen to the fierce congressional bellowing and pawing of the earth whenever the subject of imports comes up.