In 1962 Congress passed a major trade law, and the United States sharply lowered its tariffs. The United States as the world’s leader believed that it had little to fear from imports and everything to gain from demonstrating its dedication to freer trade. The nation continued to participate in gatt, and the Kennedy round of trade negotiations (completed in 1967) was particularly successful in encouraging worldwide tariff reductions.
Yet as trade barriers fell in the 1960s, America began to experience balance of payments deficits; goods exports still exceeded goods imports (the trade balance), but the net exports did not offset U.S. foreign aid, military expenditures abroad, and large foreign investments. In 1971, when it appeared that America would have its first twentieth-century trade deficit, President Nixon devalued the dollar. After 1973, worldwide currencies floated. Consistently, American imports began to exceed exports, and the country was now importing a wide range of manufactured products. For the first time in its history, on a mass market basis, Americans were buying foreign cars, foreign hi-fi sets, and foreign steel. And the nation’s dependence on high-cost oil imports made the trade deficit even worse. By the 1980s there were few product categories where American exports exceeded imports (these exports included wheat, chemicals, aircraft, and parts).
Most economists thought the fluctuating dollar would in time eliminate the trade deficit (as the American dollar fell, U.S. exports would become cheaper and thus more competitive; more costly imports would be reduced). The trade deficits, however, continued, and the dollar fluctuated wildly. Finally in the 1980s many economists recognized that floating exchange rates were not the answer, but attempts at currency stabilization proved difficult. Foreign markets for American agricultural products had been lost in periods of the strong dollar and were hard to recapture. As U.S. imports of manufactured goods increased, numerous discussions focused on America’s competitive position. Demands mounted for protectionism – to save jobs. The 1988 Omnibus Trade and Competitiveness Act allowed the president to impose sanctions on individual nations that engaged in unfair trade practices.