America’s Four A’s in Trouble

By the time you read this, most Americans will have recovered from the traditional Thanksgiving orgy of turkey, sweet potatoes and pie, topped off with a heavy dose of football - not played on the field, but watched from the couch.

American farmers raised 263 million turkeys last year, just about one for every man, woman and child. About 100 million were served up and gobbled down last Thursday; one was saved from the oven by the traditional presidential pardon.

But there is more to the holiday this year than stuffing a turkey and stuffing oneself. There is pain at the casualties being taken cleaning out the insurgents in Iraq.

Government-funded National Public Radio's television arm concludes each nightly news broadcast with pictures of fallen Americans.

Despite the war, Americans find much to be thankful for. For one thing, President George Bush's decisive election victory forestalled demands for recounts of the sort that delayed a final declaration last time.

For another, the economy is creating jobs, keeping share prices moving up and pushing consumer confidence to levels high enough to promise a merry Christmas for America's merchants. Pessimists are expecting holiday sales to top last year's by 3%. Optimists, including myself, put the figure closer to 5%.

Most Americans are not concerned about the development that has financial market watchers upset: the fall in the dollar. True, those that have non-refundable tickets to Europe's vacation spots are in for a shock, but this is not the high season for international tourism so few people will be affected.

Even fewer have sympathy for the London-based American investment bankers who are finding their dollar-denominated salaries don't go quite so far. As economist John Makin put it in his latest advice: "The dollar's recently accelerating move downward has evoked more concern in Europe and Asia than it has inside the United States, where a beatific calm has prevailed..."

The dollar will remain weak until Americans stop buying billions more from overseas than we sell to foreigners. That will happen when Americans save more, Europe reforms its economies so that they are capable of import-inducing growth, and Asian countries allow their currencies to appreciate.

Meanwhile, the prospects for an improvement in America's trade position seem dim.

The nation has four A's that paradoxically combine to mean failure: agriculture, aircraft, apparel and audio-visual products. All have been the backbone of our exports, and all are in trouble.

Since the 1950s the value of America's agricultural exports has exceeded the value of its imports. Those days are over. Lower prices for grain and cotton are pushing down the value of American exports, while imports of wine, beer, snack foods, fresh vegetables and other high-value products continue to rise.

In 1996 America ran a record agricultural trade surplus of more than $ 27 billion; this summer, imports exceeded exports.

The situation is no cheerier when it comes to aircraft. Boeing's long dominance of the market for planes is over. Last year Airbus sold more jets, and it will repeat that victory this year. Boeing has complained to the World Trade Organization (WTO) that Airbus has received $15 billion in unlawful subsidies from European governments over the past 30 years.

The EU's new trade supremo, Peter Mandelson, says he prefers negotiation to litigation, but he has not yet built up credibility as a trustworthy negotiating partner. He has so multi-faceted a political and personal agenda, ranging from destroying Gordon Brown to helping Tony Blair win his referendum on the EU constitution, that Boeing might reasonably prefer the straightforward WTO forum to talks with Mandelson.

Next on the A-list is apparel. On January 1, WTO rules governing the $400 billion-a-year textile trade will expire. Quotas that limit how many pairs of jeans and how much fabric each country is allowed to export will go, leaving low cost China and India free to take business from competitors in Asia, Africa, Latin America and the United States.

American consumers, who snap up $90 billion of textile imports every year, will benefit from cheaper goods. But the jobs of some 695,000 American workers will be threatened, making it likely that the Bush administration will take what one Commerce Department official calls "safeguard actions."

Finally, we have audio-visual products. The worldwide popularity of American films, television shows and recorded music makes them a big contributor to the nation's exports.

European films made by subsidized producers for their own artistic satisfaction pose no threat. British films, although popular in America, are too few to make a dent in the favorable audio-visual trade balance. The real threat comes from pirate copies of hit movies and games.

The problems faced by these four leading exports suggest that it will be some time before the nation brings down its trade deficit. Bush might push his plans to increase savings and discourage consumption, but there is little appetite in Congress for a radical change in tax policy.

Europe could accelerate -- no, initiate -- economic growth, but euroland is disinclined to reform its tax and regulatory regimes or its inflexible labor markets.

The Chinese could allow their currency to float, making their exports more expensive. But that would threaten the jobs of millions of urbanizing Chinese, a problem of which both Jin Renqing, China's finance minister, and Zhou Xiaochuan, head of the central bank, are well aware.

So it looks as if the dollar will have to bear the brunt of any adjustment.

Americans planning to imbibe some European culture this summer should start thinking instead about the natural beauties of the Grand Canyon, or viewing the wondrous Great Wall of China.

This article appeared in The Sunday Times on November 28, 2004.