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Paradoxically, the short-term effect of devaluation will be to worsen the American trade deficit: more dollars will have to be paid for imports already on order. After that initial impact is past, however, there are reasons to expect that the present devaluation will be more successful than the last. After the first devaluation, quite a few foreign producers were so eager to keep their share of the rich U.S. market that they did not raise their American prices but instead reduced profit margins. Now they do not have much profit left to bite into, and they will have to hike prices. Similarly, some American exports that did not experience an increase in sales after one price reduction may do better after two. Demand for such U.S. exports as coal and farm products is sensitive to prices. Otto Eckstein, a member of TIME'S Board of Economists, forecasts on the basis of computer analysis that the U.S. trade balance will move gradually to a surplus of $2 billion in 1975.
Nixon and his aides argue that devaluation alone will not cure the U.S. payments problem. They contend that American products are blocked out of many foreign markets by discriminatory trade practices. Says Shultz: "Without changes on trade, you can change exchange rates until hell freezes over, and you won't get a thing."
Shultz announced that the Administration will soon introduce a "comprehensive" trade bill that would renew the President's traditional authority to lower U.S. tariffs in return for foreign trade concessions. The bill would also arm Nixon with a dangerous new power to raise tariffs on the goods of countries that deny what Shultz calls "fair access" to American merchandise. Indeed, says Shultz, the bill would permit the President to impose higher tariffs or quotas —or both—on any foreign products that inundate specific U.S. markets.
Nixon gave a notably bellicose ring to these proposals. He had no intention, he said, of just negotiating another round of world tariff cuts. "We have gone into too many negotiations abroad in which all we have done is to negotiate down whereas others have negotiated up," the President said. With Orwellian logic, he added: "In order to get a policy of freer trade, we must always have in the background protection."
Bluster aside, Nixon has a point: the U.S. does face discriminatory trade practices abroad. Tariffs are not the most serious problem; on finished goods, they average 8.5% in Japan and 8% in the Common Market v. 8.4% in the U.S. But the Common Market lavishes on its farmers subsidies that are generous even by U.S. standards, encouraging them to grow food that could be imported more cheaply from the U.S. Beyond that, it maintains a system of variable import taxes that can be adjusted upward to keep the price of American foodstuffs as high as they were before dollar devaluation.