TRADE: DANGEROUS DRIFT FOR THE U.S.

TURNING away from the fitful franc for a moment, the International Monetary Fund last week reported some sanguine statistics about world trade. For the first time, nations are selling goods and services to each other at a rate of more than $200 billion a year. The flow reached $209 billion in this year's third quarter, an increase of 8% in the past twelve months. Altogether, the industrial nations increased their exports by 116% in the past decade.

Still, not all did well. Britain's exports rose only 45% during the same period. And while the U.S. remained the world's biggest salesman, its growth of 91% in total trade over ten years rates only two cheers. In fact, the U.S. is on the verge of a crisis in exports.

Deficit Expected. The U.S. needs an exceptionally high and rising rate of exports in order to balance its generous outflow of capital for imports, foreign aid, military aid, tourism and the like. Unless the nation achieves faster ex port growth/ it will not be able to bring its balance of payments into line, and the value of the dollar may be threatened. Though the U.S. payments ran slightly in surplus during the July-through-September quarter, much of this was due to such temporary factors as the turbulence in Czechoslovakia and France, which caused considerable European capital to flee into U.S. stocks, bonds and banks.

The Commerce Department reported that in October the nation's balance of trade stumbled into a $63 million deficit. Exports fell 20% from the September level. For all of 1968, the Commerce Department expects a trade surplus of scarcely $1 billion, in sharp contrast to last year's $4.1 billion and the fat $7 billion as recently as 1964.

The real picture is even bleaker than the figures suggest. About $3 billion or $4 billion of the nation's exports come from Government-financed sales of foreign-aid supplies and military goods. Not counting all that, the U.S. "commercial" trade will be in the red this year for the first time ever. Expected deficit: $2 billion to $3 billion.

It can be argued that exports, which rose from $22 billion in 1963 to $33.5 billion this year, have accounted for a remarkably steady 4% or so of the nation's gross national product. But just keeping lip with the G.N.P. is not getting ahead in the world. Since 1960, the U.S. share of world exports--one of the best measures of the nation's global economic power--has shrunk from more than 25% to around 23%.

Buy, Lease, Steal. Why? One reason is that inflation tends to suck in im ports and to price U.S. products out of foreign markets. At the same time, fewer orders are coming from countries that suffer from economic contraction, notably Britain and France. Other trends that operate against the U.S.:

sbTECHNOLOGY. U.S. technological superiority means less than before. Lawrence Fox, a high official of the Commerce Department, observes that "foreigners today can either buy, lease or steal American research advances." Li censing of foreign manufacturers is rising. Last week, for example, B.F. Goodrich licensed Tokyo's Mitsubishi to use a vinyl-chloride chemical process, for which the Japanese firm will build a whole new plant.

sbSIZE. No longer does the U.S. enjoy a monopoly on the economy of size. In the Common Market and elsewhere, many companies are merging. Italy's Fiat, for example, has allied with France's Citroen and is building a multinational company; it is already bigger than Chrysler. Japanese and European steelmakers are increasing their worldwide markets. They supply 17% of the steel used in the U.S. Since 1964, U.S. steel exports have dropped from 3,700,000 tons to 2,000,000.

sbLABOR COSTS. The effect of cheaper foreign labor is sometimes disputed on grounds that U.S. exports come mostly from the aircraft, computer and other industries where labor costs are secondary to quality and high engineering. But rising labor costs have driven many U.S. manufacturers to produce in overseas plants instead of exporting. For many years, labor's productivity increased even faster than wages: as a result, manufacturers could absorb the added costs without raising the prices of their goods. But last year, wages advanced faster than productivity, and that trend is expected to continue.

Rising Barriers. Though everybody seems to support free trade publicly, U.S. and foreign exporters have to hurdle an increasing number of nontariff barriers. These trade-stopping devices have become more common since the primary exporting nations voted in last year's Kennedy Round of negotiations to reduce tariffs. Among the barriers has been France's ban on imports of walnuts until late September, by which time the Italian crop has rotted. Germany limits imports of cheap U.S. coal to protect its Ruhr mines.

During the latest money crisis, Britain and France opted to defend their currencies through tax measures that strengthen weak trade balances by retarding imports (TIME, Dec. 6). West Germany's "concessions" to freer trade merely reduced some existing barriers and props, by no means eliminated them. Taxes on imports declined from 11 % to 7%, tax rebates to exporters dropped from 11% to 6%. Such tinkering is generally excused on grounds that the alternatives--devaluation of the franc and the pound, or revaluation of the mark--would be worse.

A Primary Task. Europeans worry that protectionist sentiment is mounting in the U.S. Until now, such fears have been largely unfounded, or at least exaggerated. President Johnson has repeatedly rebuffed special interest groups --including the steelmakers, the textile manufacturers, and even the mink producers--who at one point were pushing a score or more protectionist bills on Capitol Hill. During his campaign, Richard Nixon said that he is "strongly in favor of free trade," but he has also spoken of favors for certain industries. He has charged the Johnson Administration with allowing foreign textile producers "unlimited access" to "our markets," and has implied that he would be amenable to restrictions. There is sus picion that steelmen may induce the new Administration to support the import quotas that they have urged.

Support for protectionism naturally rises in a nation undergoing balance of payments problems. Economist Arthur Burns, a Nixon adviser, last week emphasized that one of the new President's primary tasks will be to "check the serious deterioration in foreign trade." One way would be to block some of the $32.6 billion in imports now flowing into the U.S. That would also reverse a 35-year trend to liberalized trade --at a time the world is trading more than ever. Ultimately, the U.S. can ease its travail in trade only by increasing its productivity at home and pressing a vigorous drive to sell more abroad.

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