A Baffling Trade Imbalance

U.S. Companies Yearn for a Turnaround

When the value of the dollar began falling early last year, American manufacturers were confident that their competitive powers would be rejuvenated. As the currency weakened, they reasoned, U.S. exports would become cheaper, while foreign imports would grow more expensive for American consumers. The trade deficit would begin its long-awaited decline. Economists cautioned that it would take time--twelve months, a year and a half at the most. But it would happen. This was no idle daydream, after all, but a proven tenet of modern economic policy.

Things have not turned out that way. Since March 1985 the dollar has fallen in...

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