WASHINGTON - While President-elect Bill Clinton contemplates how to put more pep in the U.S. economy, some of his biggest challenges may come from an unexpected source next year - overseas.
During the economic summit last week in Little Rock, Clinton was told in no uncertain terms that the outlook for growth in Europe and Japan is getting progressively gloomier. While the U.S. economy will probably revive slowly next year, Europe and Japan are likely to remain weak.
Germany, where the Bundesbank is keeping interest rates high to counter the inflation caused by the steep costs of unification, is now officially in recession. The central bank's tight monetary policy has ripped a hole in prospects for European unity.
The International Monetary Fund estimates that growth throughout Europe may reach only 1% next year. Western Europe is filled with anxieties brought about by an influx of refugees from the East, a high unemployment rate of around 10%, stagnant trade, and uncertainty over what will happen in a restless and deteriorating Russia. A brutish war is devouring Bosnia in a corner of the continent where ethnic rivalries crisscross national borders.
Japan, which is also now in recession, is wracked by bank failures, falling land values, low stock market prices, and declining capital spending. Unemployment remains low, but the government is struggling to deal with problems that are unsettling to a public used to years of steady prosperity and rising income.
In the United States. the risk is that companies will find increasingly soft demand overseas, which in turn would threaten U.S. jobs.
Exports accounted for more than 40% of U.S. growth from 1987 to 1992, according to a report released last week by the National Association of Manufacturers. Nevertheless, the business group expects the merchandise trade deficit this year to widen by $15 billion to $80 billion, the first increase in five years.
Exports are expected to hit a record $440 billion in 1992, but that would be an increase of only 5% - the slowest pace since 1986. Meanwhile, imports are expected to rise by 8%. A further widening in the trade accounts is anticipated next year as economic growth abroad remains sluggish.
Jerry Jasinowski, president of the association, says manufacturing executives tell him "the bottom's dropped out of the orders they're getting from Europe."
The big gains in trade during the 1980s under Bush and Reagan resulted from rapid growth abroad and from a U.S. policy of devaluing the dollar, making exports cheaper and imports more expensive. Now, says Jasinowski, those factors are no longer at work, and the United States will have to work harder to find foreign markets.
There are forces at work that may keep the global economy from unraveling. Japan's parliament has approved an $86.4 billion program to pump up the economy with public works projects and other initiatives. And economists expect Germany's central bank to lower interest rates further to try to ease the country out of recession.
But Clinton has not given any clues as to how he will try to ensure more vigorous growth abroad.
Early in his administration he is going to have his hands full trying to win congressional approval on the free trade agreement with Mexico and finishing up the Uruguay Round of global trade talks. These and other trade issues have been getting close scrutiny by the Clinton transition team.
Jasinowski said his manufacturers would like to see the new administration opt for a comprehensive strategy to promote U.S. exports. They recommend a more aggressive Commerce Department acting as an agent for U.S. firms, stepped-up government credits through the Export-Import Bank, and reduced export controls on defense-related products.
A member of former President Carter's economic transition team and later an assistant commerce secretary, Jasinowski has met with all of Clinton's top advisers. He said he is encouraged because they understand the strong link between U.S. exports and economic vitality.