America's foreign trade crisis

Mark Anderson

America's Foreign Trade Crisis

The United States is facing an unprecedented crisis in international trade. Over the last four years, U.S. exports have dropped and imports of foreign products have soared. The sharp deterioration of the international economic position of the United States has had a profound and negative impact on scores of domestic industries and millions of American workers. Left unchecked, this trade crisis poses a serious threat to the industrial base of the United States and the standard of living of all Americans.

The "hands-off' attitude of the Reagan Administration, based on a naive devotion to free markets that don't exist, has only served to accelerate America's decline. This fixation on textbook free trade has nothing in common with the world trading system, does not reflect the trading practices of other countries, and does nothing to solve America's trade problems. The U.S. trade deficit, influenced heavily by an overvalued dollar that has risen 65 percent against the currencies of our major trading partners, has increased almost fourfold since 1980 and will exceed $120 billion by the end of this year. Poor enforcement of U.S. trade law, ill-conceived monetary and fiscal policies, laws that encourage overseas prodution, and the absence of an effective industrial policy have all contributed to this serious problem.

The AFL-CIO believes that the goal of U.S. trade policy must be the attainment of a fair trading environment that allows this nation to remain an advanced and diversified economy. "Fair trade' means that the interests of the United States must receive greater emphasis in both the domestic and international initiatives of the nation's international trade and investment policy. To promote full employment and rising living standards, the United States must retain its manufacturing, agricultural, and service industries. Foreign trade policy and domestic economic policy must promote--not undermine --this goal.

The Size and Makeup of the Trade Deficit

Tragically, the policies of the last four years, rather than helping, have contributed significantly to the massive trade deficits the United States faces today. The dimensions of this problem are startling. The U.S. merchandise trade deficit for 1983 reached a record $69 billion, almost double the level experienced in 1980. This economic decline is accelerating in 1984, with the deficit expected to reach $120 billion by the end of the year. These deficits represent a significant drain on the economy and are responsible for the loss of millions of jobs.

While the huge total figure is chilling in and of itself, a look at the composition of the trade deficit reveals an even darker picture.

In fuel trade (oil, gas, coal), the sector that has largely been responsible for our trade deficit in the past, the U.S. position has improved over the last four years. In 1980, the United States registered a deficit of $78 billion for this sector. By 1983, this had been reduced to $51 billion, a drop of 35 percent. While exports rose moderately, imports were significantly lower. Yet during this same period, America's overall trade position deteriorated sharply.

In 1983, the United States recorded surpluses in only two merchandise trade sectors--agriculture and chemicals --but at levels considerably lower than in 1980. The U.S. trade position in manufactured products collapsed.

Between 1980 and 1983, manufacturing exports fell 8 percent, while manufactured imports increased 30 percent. In 1980, the United States enjoyed a surplus of $12.5 billion in this sector. By 1983, this surplus had vanished and the nation recorded a deficit in manufacturing trade in excess of $38 billion. This has already been exceeded in the first half of this year, and for all of 1984 the deficit in manufactured goods is expected to reach $84 billion. Put another way, the United States will suffer a cumulative deficit in this most important sector of about $128 billion over the last four years, as compared to a trade surplus of $1.7 billion in the preceeding four years. The United States has basically become an exporter of raw materials and commodities and an importer of finished goods.

Trade and Jobs

The impact of this growing trade deficit on employment is devastating. Despite the recent expansion of the U.S. economy, there are 1.3 million fewer manufacturing jobs than in 1979. Estimates of jobs lost or not created in recent years due to the trade imbalance go as high as four million.

As dramatic as these numbers are, they may very well understate the impact of trade on U.S. employment. Many trade-related employment estimates are based on assigning a certain number of jobs for each billion dollars of net exports. For example, the U.S. Dept. of Commerce has frequently assigned 25,000 jobs for each billion dollars of exports. The use of these ratios, however, does not take into account the composition of trade and, given the labor intensity of U.S. imports and the capital intensity of U.S. exports, invariably minimizes the job losses caused by imports.

In addition, because of low labor costs in many of the countries where U.S. imports originate, a dollar of imports displaces more than one dollar of U.S. production of the same item. A factor which has made dollar-denominated measures of trade even less reliable is the sharp rise in the foreign exchange value of the dollar. The appreciation of the U.S. dollar raises the foreign price of exports, and cheapens the U.S. price of imported goods. An appreciating dollar, therefore, increases the employment loss per billion dollars of U.S. imports.

Despite this lack of accurate information, the negative impact of trade is painfully clear to millions of unemployed workers and scores of devastated communities.

What's Gone Wrong?

Twenty years ago, trade had little impact on the health of the American economy. The huge size of U.S. domestic market, the absence of meaningful international competition and the overwheliming superiority of U.S. industry and agriculture confined discussions on trade to college courses in economic theory. Acceptance of the notion that free trade was beneficial and protection evil was universal. Given the international dominance of the United States, such an approach was quite sensible.

Conditions, however, have changed dramatically over the last two decades. The advent of floating exchange rates and the sharp increases in oil prices during the 1970s have had a profound impact on the world economy. Improvements in communications, shrinking transportation costs, the widespread transfer of technology and capital, and resulting growth of transnational enterprises have also served to vastly increase the volume of world trade and significantly alter traditional trading patterns.

Twenty years ago, only 25 percent of U.S. manufactured goods had import competition. Today, nearly all U.S. products are subject to international competition. In that same period, the proportion of the gross national product (total national sales) composed of imports and exports has more than doubled.

This internationalization of the U.S. economy, coupled with the unwillingness of the government of adopt policies reflecting the changed situation, is having an increasingly negative impact on American industry and workers.

Free Trade and Protectionism

In 1984, the United States will record the largest trade deficit in history--more than $120 billion. Manufactured goods will account for more than two-thirds of that total. This grim economic reality, part of a longer term trend, has not occasioned any fundamental change in U.S. trade policy. As in 1960, adherence to the principles of free trade remains the government's basic policy position. The fact that as a practical matter free trade no longer exists is somehow overlooked.

The 1982 Economic Report of the President stated:

"Competitiveness that is impaired by market forces should not be restored by raising tariffs or subsidizing export industries. Such actions simply protect the trade-dependent industries, inviting them to postpone the steps necessary to meet world competition while raising costs to consumers and reducing choices available in the marketplace. This Administration remains determined to keep both the U.S. economy and the world economy committed to free trade principles.'

The 1982 trade deficit totaled $42 billion.

In 1983, when the U.S. trade deficit reached $69 billion, the Economic Report of the President stated:

"Trade-distorting measures, whether they take the form of protection against imports or the promotion of exports, hurt the country which adopts them as well as other countries, even when they are a response to foreign trade-distorting practices. If foreign governments limit imports from the United States and we respond in kind, the initial results will be further reductions in economic efficiency at home and higher domestic pries. If foreign governments subsidize exports, depressing world prices for U.S. products, a countersubsidy by the United States will depress prices still further. The belief that departures from free trade are automatically called for if other countries do not play by the rules is a fallacy.'

The tragedy of this approach is that the U.S. is frequently left defenseless in the international arena. By emphasizing, even rhetorically, the "value' of free trade, questions of national interest tend to be dismissed, or at least relegated to a lower status, and success is measured not by the health of the domestic economy, but by one's adherence to a theoretical construct.

Free-trade theory is based on principles first espoused by British economist David Ricardo in the early 1800s. Ricardo argued that a totally free exchange of goods between countries would lead to maximum utility and, therefore, universal benefit. Each nation should utilize its own comparative advantage and specialize in the production of goods in which they are relatively more efficient, and to import those goods where their production capability is relatively inefficient. His famous example involved English wool (England had a lot of sheep) and Portuguese wine (Portugal enjoyed a superior grape growing climate).

Notwithstanding the fact that international commerce in the 20th Century is somewhat more complicated than trading wool for wine, the assumptions on which freetrade theory is commonly based bear little resemblance to conditions found in today's world.

The assumptions found in the standard model include full employment, perfect competition, perfect mobility of factors of production internally but not internationally, given resources, constant technology, no transportation costs, and many others. Basically, it's a static model attempting to describe a dynamic world.

Unemployment is undeniably real. Perfect competition can't account for state trading companies, transnational enterprises, or government intervention and subsidization. The static nature of the model doesn't deal with international capital flows. Ricardo did not consider swings in currency valuation. In the real world, there are unfortunately winners and losers, and the United States is increasingly going down in defeat.

These facts of life, and many others, make free trade as a foundation for public policy not just irrelevant, but harmful. The only policy truly compatible with this frame of reference is a policy of inaction so that the market can do its work. That the market really doesn't exist is somehow forgotten. Hence, the charges of protectionism over any action taken by the United States, however small that action may be.

It should be clear by now that our trading partners have a different conception of what "free trade' is all about. Other countries see trade as a means to the larger goal of balanced economic development and full employment. While it is true that tariffs have been lowered through successive rounds of multilateral trade negotiations, a new array of non-tariff barriers has developed--quotas, stringent inspection requirements, discriminatory standards, buy-national policies, export subsidies, industrial targeting programs, and trade arrangements such as performance requirements, coproduction, offset and barter agreements.

Continued attempts by the United States to negotiate the reduction of these measures have just not been successful, and our own market remains wide open to an ever-increasing volume of imports.

Poor Enforcement of U.S. Trade Remedy Law

This trade policy framework has led to a situation where there is reluctance to apply existing laws designed to protect American industries and workers from the negative aspects of trade.

U.S. trade law is structured both to provide relief to industries injured by imports and to counteract foreign unfair trade practices. The statute designed to relieve injury, the so-called "escape clause,' Section 201 of the Trade Act of 1974, has never been effective. Petitions under Section 201 require expensive and extensive documentation. The criteria used by the International Trade Commission (ITC) in making determinations are so vague that findings of injury seldom result. For example, earlier this year, the ITC did not find injury in a case brought on behalf of the domestic shoe industry and its workers. This finding was reached at a time when imported shoes had captured 70 percent of the American market, and thousands of workers had been laid off. Further, even if the ITC finds injury on the facts and recommends some form of relief, the President frequently decides not to implement the commission's recommendation.

Many of the same problems exist with respect to the statutes dealing with "unfair trade practices,' the antidumping and countervailing duty laws. Anti-dumping laws are designed to deal with situations where foreign products are being sold in the United States for less than the price at which the products are sold in the exporting country. Duties can be assessed to make up the difference in price. The countervailing duty law permits the imposition of duties to offset the foreign subsidy of products exported to the United States. It is designed to eliminate the unfair advantage that foreign manufacturers enjoy over U.S. producers because of a government subsidy. In addition to these statutes, there are provisions in U.S. trade law, known as Section 301, that authorize the President to take all appropriate action when the policies or practices of a foreign government are found to be unjustifiable, unreasonable, or discriminatory, and which burden or restrict U.S. commerce. Despite these laws, relief is often too little, too late, or not at all. Even for those with access to the financial resources and expertise to seek relief, the time-consuming procedures do not accomplish the intended result.

The U.S. government, despite ample opportunity, has rarely initiated action under any of our trade laws. This abdication of responsibility derives in no small measure from its adherence to a doctrine that views any government intervention as a violation of free-trade principles.

Importing Goods/Exporting Capital

Numerous tax loopholes and incentives encourage American companies to move abroad. The tax deferral on overseas profits permits U.S. companies to defer paying taxes on such income until it is returned to the United States. The result is that profits frequently remain abroad and are used for the expansion of foreign-based facilities.

The foreign tax credit allows U.S. companies to subtract from their federal tax obligation taxes paid in a foreign country. This provision gives companies a significant incentive to produce abroad. In contrast, corporate taxes paid to the state of New York, for example, are treated as a deduction for federal tax purposes rather than as a credit.

The Overseas Private Investment Corporation (OPIC) is an "independent' government corporation that insures international companies and banks against losses from expropriation, war, revolution, and currency inconvertibility. By removing risks, this agency encourages American firms to invest abroad rather than make investments of similar magnitude in the United States.

The Foreign Sales Corporation (FSC) tax gimmick, requires companies to establish offices, maintain bookkeeping operations and keep bank accounts outside the United States in order to qualify for tax breaks that are supposedly designed to promote U.S. exports.

Items 807 and 806.30 of the tariff schedules reduce tariffs on foreign products containing American parts thus encouraging overseas assembly.

The Generalized System of Preferences provides zero tariffs for some 3,000 products from about 140 nations and territories. In operation for the last 10 years, this program was intended to help the less developed countries by temporarily giving their goods special access to the U.S. market. As a development tool, the program has been a disaster, with 88 percent of its benefits concentrated in 15 countries. Just three so-called "needy countries' (Taiwan, Hong Kong and South Korea) receive about 50 percent of GSP benefits. To make matters worse, protections in the program for import-sensitive U.S. industries have not been effective, and American workers are paying the price through plant shutdowns and unemployment.

Foreign Trade Practices

In contrast to laissez-faire policies of the U.S., other countries manage their trade and investment flows to achieve maximum national advantage. Their focus is on domestic ramifications of trade, not adherence to a 19th-Century economic doctrine. A few examples:

When France was recently being flooded by large quantities of Japanese video cassette recorders, customs procedures were changed to require each recorder to be individually inspected at one small customs station. A quota agreement with Japan was quickly reached.

Italy restricts the import of Japanese autos to 2,200 cars a year.

Japan places severe import restrictions on leather goods.

Taiwan frequently conditions foreign investment on export requirements.

Brazil severly limits the importation of general aviation aircraft and heavily subsidizes its own exports.

The United Kingdom maintains strict quotas on shoe imports.

Government-owned telephone companies in other countries refuse to buy imported products.

The list could go on and on. In general, however, the principal policies employed by other countries include high tariffs, import quotas, export incentives, discriminatory procurement, state-owned enterprises, direct government subsidies, government-supported research and development, barter trade requirements, coproduction and export requirements for foreign investment and subsidized financing.

None of these measures has anything in common with free trade or free markets. Rather they are explicit repudiations of the nation that trade and economic and industrial development exclusively reside in the private sector.

The Overvalued Dollar

A major factor in America's trade crisis has been the sharp rise in the foreign exchange value of the dollar.

The appreciation of the dollar raises the foreign price of U.S. exports and cheapens the U.S. price of imported goods. From July 1980 to July 1984, the exchange value of the U.S. dollar increased by almost 65 percent relative to the currencies of other maor developed countries. Moreover, sizable devaluations in many developing countries further increased the value of the dollar on foreign exchange markets.

This massive increase in the dollar's exchange value has been a significant contributor to the collapse of the trade position of the United States. The appreciation is no different than a 65 percent tax on exports and a 65 percent advantage for importers. That the dollar is overvalued is now almost universally acknowledged. It is clear that this currency misalignment is posing severe costs for American industry and workers and makes discussions on the need to increase competitiveness almost irrelevant. Should workers in export or import competing industries take a 65 percent pay cut in order to restore their products' international competitiveness? The problem is not with American workers or industry, but with the policies of their government.

A major, if not principal, cause of the overvaluation of the dollar is the irresponsible fiscal and monetary policies of the Reagan Administration. Huge tax giveaways and unfinanced increases in defense spending have led to the enormous budget deficits facing America today. Together with the tight-money, high-interest-rate policies of the Federal Reserve Board, these budget deficits have kept U.S. interest rates high, encouraging massive capital inflows and thus keeping the dollar artifically strong. These same capital inflows have to some degree slowed the capital exporting countries' economic growth by reducing their own pool of investment funds. Their slower growth rates have reduced their ability to purchase American goods.

Another aspect of this fiscal and monetary tragedy is that as American firms find themselves being priced out of the international market due to the overvalued dollar, they may view relocation overseas a viable alternative. Given the relative openness of the American market to foreign goods, further U.S. employment losses could occur.

Third World Debt Crisis

The same policies that have led to the overvalued dollar have significantly increased the magnitude of the debt crisis facing many developing countries, adversely affecting American trade. High U.S. interest rates have raised debt service costs for these countries, reducing their ability to buy American goods and increasing their need to acquire dollars through exports to the United States. The World Bank reports that the total debt of developing countries has risen from $607 billion in 1980 to an estimated $810 billion in 1983.

The financial rescue packages put together by the International Monetary Fund (IMF) and other lending consortia have contained conditions that have further restricted trade, hurting workers in both the Third World and the United States. In the first place, these loan packages have included requirements that debtor countries reduce government expenditures and restrict imports from the United States and other countries. Thus, employment and growth in American industries that produce for export have suffered. Secondly, the developing countries have been forced by the IMF to expand their exports (which count as imports in the U.S. balance of trade) in order to obtain enough foreign currency to meet their debt service payments. This has been accomplished in part through a program of export-industry subsidization and other incentives which amount to "buying' a larger world share for their products.

One result has been a deteriorating U.S. trade balance. For example, the U.S. trade balance with the largest Latin American countries has gone from a surplus of $5 billion in 1980 to a deficit of $12 billion in 1983. At first glance, these short-run solutions may seem to have produced large advantages for the developing countries at the expense of U.S. employment and production, but in the long run their effects will be negative. The dictates of the banks and the IMF distort the path of economic development that may be otherwise rational or optimal for many countries in the Third World. For example, an emphasis on growth of industries that produce for export may come at the expense of production of basic goods that are in high demand domestically and are necessary to meet the basic needs of indigenous populations.

Labor Rights and Wages

The tremendous growth of transational enterprises in the post-war period has introduced fundamental changes in how the production process is organized. The ease with which firms can transfer technology and capital from one country to another, together with improvements in communications and transportation, has made labor costs a major element in any investment decision.

Given the relative openness of the U.S. market, there is little disincentive for companies to locate in countries with low wages, poor working conditions, and restrictions on trade unions. From the sewing of baseballs in Haiti to the assembly of calculators in Taiwan, the laborintensive aspect of production of many of the goods sold in the United States is done offshore.

Developing countries themselves promote these factors as a way of encouraging investment. In a recent speech before the House of Representatives, Rep. Donald Pease (D-Ohio) quoted the following excerpts from brochures developing countries offer to prospective investors:

"From Malaysia: The manual dexterity of the oriental female is famous the world over. Her hands are small and she works fast with extreme care. Who, therefore, could be better qualified by nature and inheritance to contribute to the efficiency of a bench-assembly production line than the oriental girl . . .? Labor rates in Malaysia are among the lowest in the region and female factory workers can be hired for approximately United States $1.50 a day.

"From Thailand: One of the major factors that recommends Thailand to the investor over other countries in the region is an abundant supply of cheap and trainable labor.

"From Colombia: Low cost labor: This is without doubt the chief incentive offered by the ZFIC as the salaries are more or less the same as those that prevail in the industrial zones in the Far East (U.S. $2.10 per day including social security). . . . Male and female workers are easily obtained due to the high rate of unemployment, rapid increases of population and the emigration from the rural zones to the cities.'

What Should Be Done

While there is no single answer to the trade problem, a useful beginning would be the recognition that U.S. national interest and adherence to free-trade theory is often incompatible. America must realize that it does not operate in a world of "free trade' characterized by the free market determination of trade flows according to traditional notions of comparative advantage. Other countries manage their trade and investment flows to achieve maximum national advantage. Their rejection of 19th-Century economic doctrine when it interferes with their domestic objectives is neither fair nor unfair, but sensible national policy.

With this in mind, the U.S. government must undertake a variety of specific actions to deal with the trade crisis.

First and foremost, U.S. trade law must be strengthened to reflect international trading realities. It is time to recognize that the principal approach to trade problems taken by the government--encouraging other countries to stop what are considered to be objectionable practices --has failed. While negotiations take place, injury to the American economy countinues.

Secondly, the U.S. government must deal with the problems trade creates for the domestic economy.

Earlier this year, for example, Special Trade Rep. William E. Brock, in a speech before the National Press Club, said that Japan was risking its entire trading relationship with the United States by refusing to adequately relax its quota on U.S. beef exports. He said the issue "has taken on a symbolic quality way beyond its substance.' This is exactly what is wrong with the U.S. approach. In 1983, the United States had a large surplus in agricultural trade with Japan, quotas or not. The overall trade balance with Japan however was in deficit by almost $22 billion due to the tremendous imbalance in manufactured goods. That is the trade problem with Japan, not beef. Attention should be directed at substantive problems, not symbolic issues.

To help accomplish this policy reorientation, legislation is urgently needed to tighten and streamline the laws designed to relieve industries and workers injured by imports.

It is clear that the so-called "fair' and "unfair' trade remedy statutes need improvements. Both "fair' trade laws designed to alleviate trade-induced injury and "unfair' trade laws designed to counteract dumping and subsidies should have better procedures and more effective remedies.

The escape clause provisions of the Trade Act should be revised to assure quick relief from trade injury. When U.S. producers lose sales to foreign producers and reduce their production and workforces accordingly, they know only that trade has injured their business operations. Workers feel the injury in the resulting layoffs. At this point, the injured parties don't know if the injury was caused by so-called "unfair' trade practices, by "fair' trade practices, by the rising value of the dollar, by foreign currency devaluation, or a combination of these causes. All they know is that the injury is trade-related. They should be able to receive temporary relief from the injury. And they should receive help from the government to make their case under the appropriate provisions of the Trade Act that deal with relief measures for specific "unfair' and "injurious' trade practices. Many aspects of foreign subsidy programs and dumping activities are more readily ascertainable by U.S. government agencies than by private parties injured by trade.

For this purpose, the statutory improvements should accomplish three major objectives: (1) to assure that the ITC evaluates more quickly and accurately the impact of imports on an industry and its workers through more specific criteria; (2) to fashion a specific remedy to alleviate temporarily the adverse effect of such imports; and (3) to provide that the President may not overturn the determinations of the International Trade Commission except with the explicit agreement of Congress.

Many of the same problems exist with respect to "unfair' trade practices, and procedures for dealing with them also are in need of an overhaul.

Another important step would be to clarify and strengthen the authority and procedures designed to identify and eliminate unjustifiable or unreasonable trade policies or acts by foreign governments.

The U.S. response to foreign unfair trade practices has proven futile in most cases. The Trade Act of 1979 supposedly authorizes the President to act when another nation's "act, policy or practice . . . is inconsistent with trade agreements' or unjustifiably "burdens or restricts U.S. commerce.' In short, when the other nations have unfair practices that affect U.S. exports, this statute is supposed to be a meaningful remedy.

But the detailed, lengthy procedural requirements, the refusal of the U.S. government to act even when the requirements are met, and the failure of the General Agreement on Tariffs & Trade process to recognize U.S. rights generally make U.S. law ineffective as it is presently structured.

In addition to steps that would help all industries hard hit by imports, the AFL-CIO believes that legislation should be enacted to deal with the problems of specific industries:

Domestic content laws to help assure that the United States remains a producer of automobiles.

Steel import quotas, provided the steel industry undertakes modernization measures.

Action to reduce the job-destroying influx of garments, textiles and footwear now inundating U.S. industry.

Legislation to revive the U.S. maritime industry to substantially increase the portion of cargo carried in U.S.-flag ships and to assure a strong U.S. shipbuilding base, thereby enhancing the national security.

Policies to maintain and re-establish domestic electronic telecommunication and television industries.

The Overvalued Dollar

To address the problem of the overvalued dollar, and indeed the future health of the American economy as a whole, a fundamental restructuring of monetary and fiscal policy is essential.

It is clear that President Reagan's supply-side, trickledown experiment has failed. The huge budget deficits --$195 billion in 1983 alone--created by these misguided policies have helped raise interest rates, thereby contributing to the overvalued dollar. Policies should be enacted to restore adequate tax revenues by reviving the corporate income tax as a major contributor of these revenues and closing loopholes that allow wealthy individuals to escape their fair share of taxes. The rapid build-up in military expenditures must also be curbed.

At the same time the tight money policies of the Federal Reserve Board must be redirected and standby credit control authority enacted.

While these overall policy changes are needed to correct the fundamental conditions that have led to the current exchange rate imbalance, there are specific actions that can be taken now to lessen the damage.

First, the United States should pursue a policy of currency market intervention, both unilaterally and in conjunction with other countries. The Reagan Administration's inaction in this area is simply an abdication of responsibility.

Second, attention should be focused on the Administration's refusal to invoke Section 122 of the Trade Act of 1974 which requires the President to impose a surcharge, quotas, or combination of both "whenever' fundamental international exchange rate problems or balance of payments problems dictate. Given the volatility of currency markets, the imposition of quotas would probably be the preferred course of action. While action need not be taken if the President determines that it would be contrary to the national interest, he is required to consult with Congress on that determination. The failure to do even that is but another example of the "donothing' attitude that prevails in the U.S. government.

It should be emphasized, however, that even if the problem of an overvalued dollar is solved, the United States will continue to experience difficulties unless appropriate reforms are made in the areas of trade and industrial policy.

Industrial Policy

The adoption of a rational and coherent industrial policy is of major importance to the future health of the American economy.

An effective industrial policy to rebuild American industry and achieve sustained, balanced economic growth requires a supportive environment of general economic policies for rapid sustained growth and job creation, including an adequate, equitable revenue base and low interest rates.

The government has maintained a basically "handsoff' or "laissez-faire' policy toward domestic industrial development and international trade. Other countries have implemented aggressive industrial and trade policies, with substantial success. In steel, auto, electronics, railcars, aircraft, and a host of emerging industries, Japan, the advanced industrial countries of Europe, and the new industrial countries have applied a wide spectrum of strategic government support--from low-cost credit to protection from import competition and government assistance in technology development. Manufacturing is most important for the health and balance of the U.S. economy, particularly the production of basic commodities which are essential for other production and have national defense implications. Area and regional difference in needs, wealth, and resources also must be taken into consideration in economic policy matters.

Part and parcel of any trade and industrial policy are a series of actions that will promote investment in the U.S. and provide assistance for workers displaced by trade, and ensure that workplace rights are strengthened.

The Trade Adjustment Assistance Program, gutted by the Reagan Administration should be restored to provide adequate compensation to those unemployed because of trade and to improve training, job search and relocation aid for those displaced workers.

Tax loopholes and incentives for multinational companies to move abroad should be ended, the tax deferral halted, and the foreign tax credit and Foreign Sales Corporation statute repealed.

The Overseas Private Investment Corporation, a government agency that insures private investment abroad should be terminated. By insuring the capital transactions and facilities of huge multinational banks and firms abroad, it has significantly contributed to the export of American jobs.

Current government emphasis on the negotiation of bilateral investment treaties to ease the export of American capital must be redirected. Emphasis should be placed on furthering the interests of the U.S. economy and U.S. workers, not multinational enterprises.

The United States should end its support of loans from the IMF that require the borrowing countries to curb imports and push exports to pay their debts. In place of this approach, which has harmful repercussions on the U.S. and other economies, the IMF should be urged to promote balanced growth in both borrowing and lending countries.

The Generalized System of Preferences should be repealed. At minimum, Congress must make importsensitive items ineligible for GSP, limit its access to those countries that can realistically be considered developing nations, and exclude communist nations from the program.

Items 807 and 806.30 of the tariff schedules reduce tariffs on products containing parts produced in the United States. These provisions serve to export American jobs and should be repealed.

American laws that prohibit bribery of foreign officials must be strictly enforced instead of weakened. In those countries that seek to attract industry through the exploitation of workers, international agreements are needed to improve labor standards. Existing codes of conduct for multinational enterprises must be stengthened to protect the rights of workers employed by these firms and to provide effective remedies when those rights are denied.

Export promotion is an important function of trade policy, and any program must carefully consider domestic priorities. The Export-Import Bank's funding should be maintained until other countries cut or eliminate their subsidy programs. Funds should also be made available for the domestic purchase of U.S. products to offset foreign subsidies. There should be assurance that a portion of U.S. raw material exports be processed in this country, so that the export of grains, logs, and other products is conditioned upon specific domestic processing.

In the case of grain exports, the U.S. government should be the negotiator through an established "wheat board' similar to the Canadian model.

The prohibition on Alaskan oil exports should be maintained, and U.S.-flag vessels should retain the essential role of distributing the oil to all regions of the country.

Restrictions should be placed on the importation of vital basic chemicals, such as ammonia and nitrogen, to insure a healthly domestic industry.

The export of capital, technology, and price-sensitive items which results in damage to the U.S. economy should not be promoted.

The nation must assign top priority to the channeling of resources to modernize private and public facilities and restore the national economy to a condition of balanced growth and full employment. Otherwise, the country will continue to lag in productivity growth and international trade. It will continue to leave significant portions of its human and machine resources idle for extended periods of time. It will continue to suffer a reduction in the standard of living of its people.

The AFL-CIO believes that the adoption of these measures --trade law reform, a restructuring of monetary and fiscal policy, active internation in international financial markets, and the enactment of industrial policy-- will help solve the trade crisis and result in achieving the basic goals of our economy: full employment and balanced economic growth.

Table: Manufacturing Employment Change From 1979 to July, 1984

Since 1979, 1.3 Million Manufacturing Jobs Have Been Lost

Table: U.S. Trade in Manufactured Products

Table: Import Share of the U.S. Market

Basic Industries Have Been Especially Hard Hit By Trade Practices

Table: U.S. Trade Deficit All Goods and Manufactured Goods

High Imports and Lost Markets for U.S. Manufactured Goods Account for a Major Part of the Nation's Trade Deficit

Table: U.S. Bilateral Trade Balance

Table: LATIN AMERICAN DEBT CRISIS*

Table: Value of Foreign Currencies in U.S. Dollars

Changing Currency Values Undermine the Competitiveness of U.S. Products July 1980-July 1984

Table: Rise in Value of the U.S. Dollar July 1980 to July 1984

An Overvalued U.S. Dollar Makes U.S. Goods More Difficult to Sell and Encourages a Flood of Imports

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