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.
Clayton-Matthews, Alan, "Economic Currents: The State of the State Economy" (1998). Public Policy and Public Affairs Faculty Publication Series. 17.
University of Massachusetts Donahue Institute