Can America Compete?, and: International Trade and the Future of the West (review)

BOOK REVIEWS Brewer S. Stone, editor Bergsten, Cline, and Williamson, Bank Lending to Developing Countries ..... 260 Cavanagh, et al., From Debt to Development .............................. 260 Culbertson, J., International Trade and the Future of the West ............... 238 Daniels, R., Russia: The Roots of Confrontation............................ 246 Emerson, S., The American House of Saud ............................... 248 Gupte, P., Vengeance: India After the Assassination ofIndira Gandhi.......... 257 Guttentag and Herring, The Current CrisL· in International Lending......... 260 Hosking, G., The First Socialist Society................................... 246 Katzenstein, P., Small States in World Markets ............................ 262 Katzenstein, P., Corporatism and Change................................. 262 Lamb, D., The Africans ............................................... 255 Lawrence, R., Can America Compete? ................................... 238 Lessard and Williamson, Financial Intermediation Beyond the Debt CmL· ..... 260 Long, D., The United States and Saudi Arabia............................. 248 Mearsheimer, J., Conventional Deterrence ................................ 251 Moffett, G., The Limits of Victory ....................................... 259 Opello, W., Portugal's Political Development .............................. 243 Penniman and Mujal-León, eds., Spain at the PoIh ....................... 243 Safran, N., Saudi Arabia: The Ceaseless Questfor Security ................... 248 Treverton, G., Making the Alliance Work ................................ 251 Turner, K., Lyndon Johnson's Dual War ................................. 241 Turner, S., Secrecy and Democracy ...................................... 254 Ungar, S., Africa: The People and Politics of an Emerging Continent .......... 255 Von Mellenthin and Stolfi, NATO Under Attack.......................... 251 237 238 SAIS REVIEW Can America Compete? By Robert Z. Lawrence. Washington: The Brookings Institution, 1984. pp. 156. International Trade and the Future of the West. By John Culbertson. Madison, Wis.: 21st Century Press, 1985. pp. 242. Reviewed by Stephen Pilon, SAIS M.A. 1985, a research assistant at the Federal Reserve Board in Washington. In recent months the combination of record trade deficits and a stagnating domestic economy has generated considerable political pressure in support of legislation designed to protect a variety of American industries from foreign competition. Literally hundreds of bills on this subject are now pending before Congress. Even President Reagan, on record as favoring free trade, has been obliged to develop a program designed to placate the large number of constituencies that perceive their interests to be seriously injured by the flood of imports. This tendency toward protectionism is opposed by the vast majority of academic economists. They argue that free trade benefits all nations involved, permitting international specialization of production according to differing relative endowments of natural resources, labor, capital, and knowledge. They see protectionist pressures as originating with politically powerful groups that stand to benefit from special legislation detrimental to the interests of the nation as a whole. Some economists, however, maintain that a country can improve its overall welfare by selectively restricting its international trade. This would be done in the hope of fostering industries that are thought to have particularly salutary effects on future prospects for growth. Such economists see recent U.S. economic performance as a case study in how unfettered free trade can lead to a decline in the vitality of a nation's industrial sector. They hold that protectionist policies, properly formulated and applied, have the potential to slow or reverse the perceived deterioration in American manufacturing, benefitting the entire nation. Robert Z. Lawrence of The Brookings Institution clearly falls into the freetrade camp. In the first section of Can America Compete? he examines the widely held view that the U.S. economy has been deindustrializing under the impact of foreign competition. He denies emphatically that the United States is becoming "a nation of hamburger stands." Conceding that the manufacturing sector's share of total employment declined between 1960 and 1980, he observes that its share of total gnp nonetheless remained almost constant at about 45 percent. This seeming paradox is explained by the more rapid rate of increase in labor productivity in this sector than elsewhere in the economy. Lawrence compares U.S. manufacturing to that of the other major industrialized nations and adduces a variety of measures which indicate that manufacturing in the United States actually fared better than in the major European economies and only marginally worse than in Japan between 1973 and 1980. In fact the United States increased employment in manufacturing over this period faster than any other oecd nation, Japan included. Lawrence then estimates the impact of international trade using an econometric regression and input-output analysis. He concludes that between...