The Balance of Payments in 1970

Abstract

IN THE FIRST ISSUE OF THIS JOURNAL, Lawrence Krause asked whether the trade balance was tracking its usual relationships to demand changes in the United States and abroad.' This question was posed in the face of concern about the possibility that the prolonged U.S. inflation in the late 1960s had permanently affected U.S. competitiveness. As Krause noted, the year 1970 would test whether the basic relationships had changed. In this report on 1970 balance-of-payments developments, I extend Krause's question to (a) the basic balance, defined as the current account plus the net direct investment account, and (b) the balance on private financial capital, that is, private capital flows other than direct investment. With respect to exports and private financial capital flows, the answer is, Probably yes; the aggregate data yield no special evidence that past relationships have been altered by the inflation of the late 1960s. On the import side, however, it does seem that in 1970 imports were perhaps $3 billion higher than might have been expected on the basis of last year's growth in gross national product (GNP).