Robert Z. Lawrence

Is Trade Deindustrializing America? A Medium-Term Perspective

FREE INTERNATIONAL TRADE rests on the principle of comparative advantage. By engaging in trade, a nation can benefit from specializing in the production of goods in which it is relatively more efficient and exchanging them for those in which other nations excel. Provided its cost levels are appropriately adjusted by exchange rate changes or monetary flows, the nation will be sufficiently competitive to pay for its import needs. Over time, comparative advantage may shift, however, and in principle an economy might lose its comparative advantage in an entire sector. Indeed, it is widely believed that the U.S. manufacturing sector is in the process of just such a decline-developed countries have become increasingly competitive with U.S. firms at the upper end of the technology spectrum while developing countries have penetrated the markets of those firms making more standardized products. The perceived effect of international competition has grown to the point that it is frequently cited as the major source of structural change in the U.S. economy and the primary reason for the declining share of manufacturing in U.S. employment. This shift of U.S. production away

The Protectionist Prescription: Errors in Diagnosis and Cure

ADVOCATES OF PROTECTION rest their case primarily on two basic premises. The first is the commonsense notion that high-wage countries, such as the United States, cannot compete with low-wage countries. If workers are paid twelve dollars an hour in America and less than two in Korea and both countries have access to world markets for capital and technology, firms located in Korea can always underprice those in the United States. If such countries engage in free trade, workers in the high-wage economy face two disastrous options: unemployment or slave-level wages. The second is the unlevel playing field argument, which appeals to U.S. national self-interest. The real world is dominated by nationalistic economic policies. The competitive, open environment assumed by international trade economists simply does not exist. Only the United States bases its policies on the rules of the free market. Foreign governments support targeted industries with subsidies, selective procurement, and trade protection. The result is an unlevel playing field on which the ball inevitably bounces toward the U.S. goal. For protagonists of both these positions the correct response to these problems seems clear: America should abandon the view that market forces dominate trade flows.1 It should act like other countries and manage trade to its advantage. Imports of foreign products should be

Within and between-country variances in inflation rates: Are they similar?

Abstract This paper critiques the test which led Hans Genberg to the widely cited finding that the variance in inflation rates across OECD countries under fixed exchange rates was not significantly different from the variance in inflation rates across U.S. cities. It offers a more appropriate test which indicates that, in fact, there is a highly significant difference in the variance of inflation rates within and among countries.

An Analysis of the 1977 U.S. Trade Deficit

IN 1977, the merchandise trade accounts of the United States recorded the largest deficit to date-

American Manufacturing in the 1990s: The Adjustment Challenge

31.4 billion. Viewed in historical perspective, any U.S. trade deficit is an unusual occurrence: until 1971, the U.S. trade balance had been in surplus throughout the twentieth century. In 1977, the United States had a deficit of 1.7 percent of the gross national product, or 11.5 percent of the combined value of merchandise exports plus imports. (By comparison, Italys trade deficit in 1974 was 10.3 percent of trade value; the deficit of the United Kingdom was 4.7 percent in 1967 and 12.1 percent in 1974.) The U.S. invisibles account showed a substantial surplus, however, so that the estimated current-account deficit in 1977 of

Managing Macroeconomic Imbalances

19.3 billion was 7.1 percent of the value of merchandise trade. The present U.S. trade deficit is particularly conspicuous because the balance has declined precipitously since late 1975. In 1975:4, the trade balance (seasonally adjusted annual rate) was an

Efficient or Exclusionist: The Import Behavior of Japanese Corporate Groups

8.9 billion surplus; one year later it had become a deficit of

The 1972-75 Commodity Boom

14.4 billion, and by 1977:4, the deficit had grown to

U.S. Current Account Adjustment: An Appraisal

35.5 billion. This change in the trade balance resulted from a slow growth in the value of U.S. exports (an increase of 7.1

Commodity prices and the new inflation

In the 1990s, U.S. manufacturing will be heavily affected by two developments which have already played a major role in U.S. industrial performance in the 1980s. The first development is the shift in U.S. spending patterns from a nation living within its means to a nation living beyond them.