Economic Report of the President

dropped even faster, in large part because of the recession here. As aresult, net exports measured in constant 1972 dollars showed a verylarge $13.5-billion increase during the year.In value terms, shifts in the U.S. trade balance were importantlyaffected by payments for oil. From the third quarter of 1979 to thefirst quarter of 1980 the oil import bill increased by about $20 billionat an annual rate because of much higher oil prices. Other tradeflows only partially offset this increase, and the merchandise tradedeficit widened by $15 billion to an annual rate of $43 billion in thefirst quarter. After the first quarter, however, the volume of oil importsdeclined sharply. Thus, despite some further increases in oilprices, the oil bill fell, contributing to the marked narrowing of thetrade deficit. The merchandise trade deficit for the whole of 1980was an estimated $26 billion, $3.5 billion smaller than in 1979. Invisiblestransactions, which reached a record surplus of $33 billion atan annual rate in the first quarter, more than offset the deficit onmerchandise trade during 1980.For 1979 the U.S. current-account deficit was a small $788 million.It was in deficit by about $10 billion at an annual rate in the first halfof 1980, moved sharply into surplus in the third quarter, and is likelyto show a surplus of $3-$6 billion for 1980 as a whole.The most noteworthy feature of recent U.S. trade performance hasbeen its strength. From 1977 to the second quarter of 1980 thevolume of U.S. exports grew by 40 percent. More significantly, theshare of U.S. exports as a percentage of the total exports of the industrialcountries over this period increased by about 1 X A percentagepoints, reversing a declining trend visible since the 1950s. At thesame time, the volume of U.S. imports showed almost no growth,even though real GNP rose by about 7 percent. This was a majorbreak in longer-term trends, which have shown U.S. imports growingat rates well above the growth of real GNP.These aggregate indicators of recent trade performance are all themore striking in view of the widespread popular notion that theUnited States is losing its ability to compete in both foreign and domesticmarkets. It may be that these views stem from unwarrantedgeneralizations from particular sectors—such as automobiles, whereforeign pressure clearly has increased—to aggregate trade. In addition,it may be that losses in relative terms vis-a-vis certain tradingpartners—most notably Japan and a certain number of newly industrializingdeveloping countries—are viewed as more significant. Eachof these concerns is certainly legitimate to some extent, but theyshould not obscure the overall success of the United States in foreigntrade. Encouragement can be drawn from our recent aggregate performance,which most analysts ascribe to the increased competitive-145