The United States is the world's largest trader, importing and exporting more than any other country. What does this really mean? Does it mean that the United States depends more on trade with foreigners for its production, consumption, or employment? Although it is not a totally accurate measure, the proportion of a country's gross domestic product attributable to international trade does give a fairly good approximation of a country's dependence on international trade. Figure 7.7 illustrates the degree of openness of various countries to international trade. The data given confirm the Principle of Declining Share of Foreign Trade explained earlier.
Between 1965 and 1985, the value of world trade increased from $187 billion to $2 trillion a year. That means it more than doubled in volume terms, outpacing the growth of output in the industrial countries. Every country in the chart was much more open to trade (as measured by the average of exports and imports as a proportion of GDP) in 1985 than it was in 1965. The United States was the least open of the big industrial countries, though its ratio of trade to GDP increased from 5% to 9%, Japan, surprisingly, was still a closed economy by European standards; its ratio of trade to GDP increased from 10% to 15%. West Germany's ratio increased to 33%, Belgium's to 76%.
The countries on the left side of the graph have one common characteristic—they are large in terms of population and GDP. The countries on the right side of the graph are small. Trade is a larger percentage of GDP for the countries on the right side of the graph than for those on the left. Belgium, for example, which has a rather small population of about ten million people, has the largest percentage of foreign trade. On the other hand, the United States, the country with the largest population, has the smallest dependence on foreign trade, with foreign trade accounting for less than 10 percent of the GDP.
The relative position of the United States is not as good as it appears, however. First, the United States' ratio doubled over the twenty years shown, while Japan's ratio increased by only 50%. Second, adding in international financial transactions increases the proportion of the U.S. GDP devoted to international business to about 25%.
These documented quantitative changes in the United States' international trade position are less significant than some qualitative changes. The United States, formerly a leading exporter of industrial/ manufacturing goods, has now become a leading importer of many of these goods. In addition, trade in services, in which the United States once had a healthy surplus, is beginning to decline.
Most people still hold high hopes for the United States' ability to compete in the world market in the so-called hi-tech area of industrial products. Yet the United States made little progress over the twenty years from 1960 to 1980 in enlarging its share in these markets. As a matter of fact, the country experienced losses in some of these markets, notably the electronic equipment and components and professional and scientific instruments categories. The data in Figure 7.8 and Figure 7.9 show that the countries that have benefited from the deterioration of the United States' hegemony in the world's markets have been mostly the developed countries of Canada, Japan, and West Germany and the newly industrialized countries of Taiwan, South Korea, and Mexico.
The end result of this inability of U.S. business to compete in the world market—combined with a decline in the prices of primary products (agricultural products), which reduced import receipts, and fortified by the ever-increasing appetite of American buyers for foreign goods—has been a tremendous acceleration in the foreign trade deficit. The U.S. trade deficit quadrupled in the 1980-1986 period.
- 4139 reads
