416 DOCUMENT RESUME ED 219 293 SO 014 019 AUTHOR' yathieson, John A. TITLE U.S. Trade with the Third World: TheAmerican Stake. Occasional- Paper' 28. INSTITUTION Stanle? FOundation, Muscatine, Iowa. PUB DATE Jan 82 NOTE 34p. AVAILABLE FROM Stanley Foundation, 420 East Third Street, Muscatine, 'IA f2761 (free). EDRS PRICE MF01 Phis Postage. PC Not Available from EDRS. DESCRIPTORS *Developing Nations; Economic Change; *Economic Factors; Futures (of Society) IDENTIFIERS1- *International Trade ABSTRACT This essay examines the various economic effects or U.S. trade with developing nations todetermine''whether or'not such trade is in the U.S. interest. Expansion of ,trade withthe Third . Worls very much in keeptiwith the Reagan administration's economlc goals. It.stems f conviction that solution to the.. problems of poverty and'insufficient economic development is tobe found in the magic of the market place. U.S.' gains from tradein6lude acceps to needed raw materials, consumerbenefits, economic effikelZncy, and growing marketsfor U.S. exports. Although U.S.trade with the'developidg countries is quite favorable (with theexception of oil), it is not sufficient to look exclusively on thepositive side. One serious costto the United States is loss 'ofemployment opportunities in" declining industries. Study afterstudy identifies the same'industries as being most sensitive to -importcompetition: textiles and clothing, footwear, leather goods, and consumer electronics. Compered to a protectionist stance,the/article concludes, in the lbng run, a set of policies to stimulateworld, trade and distribute its costs equitably carrieswith it a much greater potential kor ippeoving the economicwell-being of all nations. (RM) /./ *t*************************t***,***********************-*****************) * * Reproductions suppLiestrby EDRS are the best than bemade * , * ' from the oiginasl'document. ***************.****************************************************** 77. ISSN 0145-8841 1982 The Stanley Foundation- U S. DEPARTMENT OF EDUCATION NATIONAL INSTITUTE OF EDUCATION MAR 1 '81982 EDUCAtIONAL RESOURCES INFORMATION CENTER (ERIC) A"/ T document has been reproduced as recerved from the person or arganaatIon Ongnat.ng /Minor changes have been made to improve ,,,OG,OOUCOOn quality Points of anew or oprnoons stated to the docu- ment do not necessanty represent off 'cal NIE positron or poky. 4 US Trade with the John A. Mathieson Third World: Occasional Paper 28 The American The Stanley Foundation Stake Muscatine, Iowa US-A Janua'ry 1982 "PERMISSION TO REPRODUCE THIS 'MATERIAL INMICROFICHE ONLY 4 HAS BEEN GRANTED BY 4Po a, .(pa rA_, TO THEEDItATIONL RESOURCES INFORMATION CENTER (ERIC):' 4 , ..... .., . About the Author , John A. Mathieson is a senior fellow at the Overseas Development Council. Prior to Joining ODC, he was a financial analyst with the Exxon Corporation, a research I associate with the Economic Planning Council, Taipei, Taiwan (while on a Luce Scholar Fellowship), and a consultant to the German Marshall Fund and the Ford Foundation. He is author ofThe Advanced .Developing Countries Emerging Actors in the World EconomyandBogie Needs and the New International Economic Order An Opening for North-South Coltaboration in the 19805. 4 at .. , II Contents 'Introduction 5 The Nature and Growth of VS Trade with Developing Countries 6 .-, The US Stake 11 US Gains from Trade 11 A.ccess to needed raw materials Consumer benefits Efficiency gains .., , Growing rrrarkets for US exports Costs to tlie United States: EconomicDislocation 1.6 NI, The Two-Way Street of Trade 18 Trade Policies TowardDeveloping Countries 19 Effects of the Tokyo Round 24. 0 Safeguards and Curbs 22 23 A New US ExportConsciousness $11 ) (... A Future of Inward-Looking or 24 Outward-Looking Policies? I % , Need for Dynamic Economic Change 25 The ,. Stanley Foundation Information 30 11 4 N S 1 About the Essay Trade is the primaryform of international economic transaction.A great majo of these commercialflows are managed b private business buttake place within governmental regulationsand institutions. Consequently, trade isclosely related to official policies. Expansion of tradewith the Third World is very much inkeeping with the Reagan .15 administration's economicgoals. John Mathieson points outthat world interdependence must berecognized, particularly in times ofeconomic stagnation. He notesrelated costs, citing job dislocation as majorproblem which must reviews the benefits to- be solved. And he 4 be gained, evaluatingthe US stake as positive and growing.Compared,to a protectionist stance, heconcludes, "In the long run, a set ofpolicies to stimulate world trade anddistribute its costs equitably carries with it amuch greater potential for improvingthe economic well-being of all nations." fh is paper is publish( d and distilbuted as part of the Stanley f oundation s programming The views expressed are those of the aithor and not necescarile those of the Foundation Permission is granted to duplicate or quote any or alJ material o long as proper acknowledgment is made Additional copies are available free of charge, and multiple copies can be supplied as long as inventory allows 41" US Trade with the Third `World: The American Stake Introduction In contrast to its predecessors, the Reagan administration had indicated as an ex.plicit statement of policy that private sector transactions ca.iinstitute the core of, US,.relations with developing countries. The rationale for this policy is in part based on a tactical effort to blunt proposals for greater gov- ernmental programs, particularly ;foreigivi-iid, to assist the developing countries It also stems, however, from the gen- uine coFViction th.it the solution to the problems of rtc;verts and insufficient economic development is to be found, in the`words of President Reagan, in the magic of the market place This new-found "wisdom in fact only confirminfg what has for Come time been the reality of the relationship. While ti the emphSsis given to the role of the private sector has certainly become more ronounced, private 'transactions, primarily international trade and investment, have for years far exceeded official' monetary flows between the United, States and developing countries hi 1980, for example, the total US foreign aid prograth amounted to some "S7 billion, a good part of which was extended. for security reasons rather than development purposes B% comparison, the United' Stares imported $118 billion North of goads from develop- ing nations in 1980 and sold $83 billion worth of products to those countries The stock of icheign dire& investment in `developing countries by US firms totaled over S52 billion at the end of 1980 These figures alone are sufficient to underscore the impor- tance.of privatenterptise in US-Third World relations and to.dispel the wifely held ro th that developing countries are merely imp( yerished, often ungrateful recipients of US aid ortie shou'l'd not, however, wpte off foreign assistance at, unnecessary since many developing nations, particularly theworest countries of Sub Saharan Africa and South Asia, 'eve little opportunity to expand their export earnings and attract investment inflows These countries will continue to require aid tct maintain existing levels of production and consumption, mpch 1es5 to grow out of the misery (3f pover- ty_ 5 1 t.. Among all the irariovs forms of international economic transactions, trade is paramount. The importance of compar- ative advantage and of the potential gains from trade was establishvd hundreds of year's ago In fact, the roots of mod-' ern-economic analysis, found in writings of Adam Smith and David Ricardo, were based on a discussion of the merits of trade Despite a growing involvement of state-owned enterprises, the great majority of commercial flows are man- aged by private businesses. However, this commerce takes plate within the contixt of rules, regulations, and institu- tions that are designed and operated by governments. As a result, official policies have a marred effect on the forms and levels of trade flows Gillen the importance of international trade to both devel- oping countries and the United States and given the basic orientation of the current US administration, it is appropri- ate to take stock of the nature of trading relationships and policies that shape them A prudent course of action on trade matters could enhance te growtE performance of all nations involted and couldrovide the additional benefit of improving US-Third Worlrelations The Nature and Growth of US Trade with Developing Countries -,,Developing countries are play ing a large, rapic111, growing role in US tradq relations to the point where developing country growth can directly affect US economic perform- ance and well-being However, misconceptions concerning the nature of US-developing country trade have led to faulty conclusions concerning the resulting costs and benefits Anal- ysis of the macroeconomic aspects of this trade reveals little Jolla surprising nature other than the pace of dowtli and the fact that, in spite of its many positive features, US-Third World trade has been subject to vehement debate and criti- cism While the composition of US transactions with individual developing countries varies enormously, trade between the United States and the Third World as a whole follows a predictable pattern. machinery, transport equipment and other categories of capital goods, and sophisticated manu- factures, along with agricultural products, dominate US exports