Economic Report of the President

widespread misconceptions about the competitive position of theUnited States is essential if we are to get through the difficult periodahead without making major policy mistakes. The second section ofthe chapter is devoted to financial developments and their effects ontrade, especially the appreciation of the dollar and its likely effects onthe U.S. trade balance. Two final sections examine macroeconomicand financial problems in Europe and the developing countries.LONG-RUN TRENDS IN U.S. COMPETITIVENESS:PERCEPTIONS AND REALITIESConcern over the international competitiveness of the UnitedStates is as high as it has ever been. It is argued with increasing frequencythat U.S. business has steadily lost ground in the internationalmarketplace. This alleged poor performance is often attributedboth to failures of management in the United States and to the supportgiven to foreign businesses by their home governments. Feedingthe perception of declining competitiveness is the persistent U.S.deficit in merchandise trade, especially the imbalance in trade withJapan.Changes in U.S. trade performance must, however, be put into thecontext of changes in the U.S. role in the world economy. This widerapproach reveals that much of the concern about long-run competitivenessis based on misperceptions. Although the recent appreciationof the dollar has created a temporary loss of competitiveness,the United States has not experienced a persistent loss of ability tosell its products on international markets; in fact, in the 1970s theUnited States held its own in terms of output, exports, and employment.Changes in the relationship of the United States to the worldeconomy, however, have made the United States look less competitiveby some traditional measures.AGGREGATE PERFORMANCE OF THE UNITED STATES AND OTHERDEVELOPED COUNTRIESDiscussion of U.S. competitiveness often gives the misleading impressionthat the United States has consistently performed poorly relativeto other industrial countries. The U.S. share of world trade andworld GNP did in fact decline throughout the 1950s and 1960s, reflectingthe recovery of the rest of the world from World War II, togetherwith the narrowing of the huge and unsustainable U.S. technologicallead. In the 1970s, however, this long decline leveled off.• From 1973 to 1980, real gross domestic product (GDP) in theUnited States grew at an annual rate of 2.3 percent, compared52