Courtesy Reuters

A Year of Travail: The United States and the International Economy

While the stridency that has increasingly characterized North-South economic relations was somewhat muted in 1978, the tensions that have troubled economic relations between the industrialized nations in recent years were sharpened. This increase in tensions was largely a spillover into the international arena of unresolved problems of domestic economic management. Slow growth, sluggish investment and persistently high rates of unemployment and excess productive capacity continued in most major industrialized countries; only the United States sustained its recovery pace of growth from the sharp recession of 1974-75. As regards inflation, the shoe was on the other foot; in most of the advanced economies the rate was declining or relatively stable, while in the United States it accelerated significantly during the course of the year.

The international reflections of these domestic difficulties included reduced world trade growth, an escalating threat of protectionist attitudes and policies, widening payments imbalances, and increasing instability in foreign exchange markets. These last two developments were attributable in large measure to divergent rates of inflation and real growth between the United States on the one hand and other leading industrialized nations - particularly Germany and Japan - on the other.

Two sets of issues were acute during the year. One set involves such "macroeconomic" questions as the coordination of domestic stabilization policies and the operation of the international monetary system, including the exchange-rate regime. In the other or "microeconomic" sphere, especially in trade and commercial policies, measures to restrict or cartelize world trade proliferated even as the year-end deadline facing the multilateral trade negotiations in Geneva drew closer. In both spheres, the rapid increase in economic interdependence of recent years was straining political and institutional structures, both domestic and international, as nations tried to minimize the threat such interdependence posed to national economic autonomy.

For the United States, whose dominance of the international economic system during the quarter century following World War II has declined significantly in recent years, questions relating to its changing role became especially acute. A common

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