The relentless U.S. trade gap, which finally improved in the past two years, will start rising again by 1990 unless the government enacts major policy changes, according to a prominent international economist.
The U.S. current account deficit, the broadest measure of trade, will rise to about $150 billion in 1992 while the surpluses of Japan and West Germany are likely to increase to $135 billion and $85 billion, respectively, said William Cline in "American Trade Adjustment: The Global Impact."The current account deficit, which includes merchandise and financial flows, shrank by 12 percent to $135.3 billion from 1987 to 1988.
The book, published by the Institute for International Economics, was scheduled to be unveiled at a news conference.
Cline argued that U.S. failure to take new action to reverse the worsening trade gap will endanger U.S. economic growth and health, in part by encouraging new protectionist measures by Congress.
Failure to act also would result in the U.S. trade deficit never falling below $115 billion per year - requiring America to borrow overseas more than $10 billion a month indefinitely. The buildup of foreign debt would exceed $1 trillion by 1992, Cline said, risking a collapse in the dollar and triggering a surge in inflation, higher interest rates and possibly a recession.
In order to head off these problems, the United States must reduce its massive budget deficit as envisioned by the Gramm-Rudman balanced budget law, Cline said. In balancing the budget within four years, U.S. consumers would reduce demand for foreign products and the trade deficit would be cut to a more sustainable level of $50 billion a year, he said.
The United States also must push for a 10-percent decline in the value of the dollar against major foreign currencies by the end of 1990 to make American goods cheaper and more attractive abroad while foreign goods become more expensive in America. The dollar lost more than 50 percent of its value against the Japanese yen and the West German mark since 1985.