Document Type


Publication Date

Fall 1998


The rising trade deficit that originated in the Pacific Rim Tiger economies in the summer of 1997 and then spread to Japan is now inundating the Massachusetts economy. For months we felt its benefits: lower import prices due to the relatively strong dollar; lower raw materials prices, thanks to the drop in worldwide demand; and lower interest rates because of the flight to quality U.S. securities. Now the flip side has become evident. East Asian purchases of American goods have plummeted; they are simply too expensive for these countries to afford. The strong dollar is causing American-made goods to be more expensive compared to foreign-made goods, not only for our trading partners, but for our domestic firms as well. As a consequence, exports are falling and imports are rising, catapulting trade deficits, slowing output growth, and reversing the recent growth in manufacturing employment. Other recent economic currents adversely impacting the U.S. and Massachusetts economies, particularly manufacturing, include a build-up of excess inventories during the first quarter of the year, a glut in the semiconductor market, and the General Motors Corporation/United Auto Workers strike. These are less worrisome than the events in Asia, as their effects are expected to be temporary. The strike is over, and strong consumer spending should eradicate the inventory problem. Also, the rapid pace of technological change limits the duration of the chip cycle downturn, as obsolete chips depress neither the price nor demand for new ones. The length and depth of the Asian crisis, however, are still uncertain, and the magnitude of its effects on our economy, difficult to predict.


Published in MassBenchmarks, Vol. 1, No. 4, pp. 4-8:


University of Massachusetts Donahue Institute

Included in

Economics Commons



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.