DON'T BLAME imports, or the people who buy them, for the gigantic American trade deficits. The trouble lies in the currency exchange rates, and it's more useful to ask why the exchange markets have been behaving so strangely in the past several years. This week a congressional conference on exchange rates, convened at the initiative of Rep. Jack Kemp and Sen. Bill Bradley, is at work on that question. Most of Congress has now acknowledged, publicly or otherwise, that protectionism -- the attempt to hold down imports by law -- is dangerous and costly in its effects. But if protectionism won't work, the politicians anxiously ask, what will?
The kind of reform that's needed has less to do with changing the exchange system than with changing the attitudes and political preconceptions that surround it. From World War II until the 1970s, Americans lived in a world in which exchange rates were something for other countries to worry about. The rest of the world made little difference to the hugely powerful economy of this country, most American thought, and they were right -- for a while. But beginning in the early 1970s this country's foreign trade expanded twice as fast as its economy, and the flows of foreign investment expanded even faster. Although foreign trade and foreign money became major determinants of American prosperity, American views of the world did not adjust immediately to that reality. Until recently the Reagan administration brushed off the foreign connections with the argument that, with steady growth here at home, the international accounts would take care of themselves. That hasn't worked.
As long as the United States runs large budget deficits requiring foreign financing, the dollar exchange rates will continue to be out of line. All of the trading countries draw great advantages from the enormous volumes of trade that now tie their economies together. But because they are tied together their governments enjoy less independence in economic policy than they once did. The Americans in particular are having trouble getting used to these constraints and the obligations to cooperation that they impose.
But the responsibility for poor performance does not lie wholly with the United States. Germany and Japan are still not entirely accustomed to their economic weight, and still behave as though their policies had little effect on anyone but themselves. As long as countries as strong as those two accept so little responsibility for making the system work, it is not likely to work well.
No one country dominates the exchange rates any longer, and managing them successfully is necessarily a joint endeavor. That's the spirit in which the Kemp-Bradley conference is proceeding and that's why it may turn out, in this city of conferences, to be unusually useful.