Introduction

The nations of the world are becoming increasingly interdependent from an economic perspective. Products and services are being designed, produced, distributed, and marketed on a global basis. Business opportunity and competition do not end at the water's edge; whether that water is the Pacific Ocean or Lake Michigan. Foreign trade and international finance have arrived in the heartland of America, and concern with exports, imports, and foreign investment have made the Central Wisconsin economy a more diverse and complex organization.

This report will describe recent trends in U.S. foreign economic activity, and it will emphasize the benefits and costs of this process to the state of Wisconsin and to our own region. The benefits of foreign trade include a greater variety of consumer goods for Central Wisconsin residents, and more choice for us in terms of price and quality. Local businesses have extended their markets through exports, and several firms have improved their competitiveness by importing materials and equipment. Costs of becoming involved with foreign trade include increased transportation costs, volatile exchange rates, more indirect marketing procedures, and more complex financial arrangements.

National Trends

In the 1980s, the merchandise balance of trade deficit has become the ultimate indicator of United States economic performance. Journalists, stock market speculators, and government officials anxiously await the release of each month's figures. Figure 1 shows the trend in this measure in current prices and adjusted for inflation.

If ten economists were arguing over the "cause" of the balance of trade deficit, they would come up with twenty plausible hypotheses. My own view is that national trends in U.S. economic structure, large deficits in the federal government budget, and reluctance to save by the American public are responsible for most of the balance of trade deficit. Please note the popular explanations of our trade deficit that I did not cite: lack of technological progress, poor management, greedy and uncooperative unions unfair trade practices of other nations, volatile foreign exchange markets, and lack of direction by government. The problem with these "explanations" is that either they are inconsistent with the data or they existed long before there was a balance of trade problem.

The eagerness of foreigners to invest in America is closely correlated with our trade deficit. Whether this significant and expanding phenomenon is a cause or a result of our trade situation is debated by experts, but the fact remains that capital inflows are largely financing our excess of imports over exports. Figure 2 indicates that America's new status as the world's largest debtor nation is directly correlated with the attractiveness of our financial markets to international investors.

Wisconsin's International Economic Performance

Our state has become involved in many aspects of the global economy. In 1987 Wisconsin's exports were $3.07 billion, and its imports were $2.30 billion. Although data on a state's foreign transactions are not precise, Wisconsin's trade performance is noteworthy in a year when the United States ran a large deficit. A surplus of $773 million is a healthy accomplishment for a state that is located in the Midwest. 1988 represents a continuation of this trend with a surplus of $363 million during the first six months. Wisconsin's leading export industries are non-electrical and electrical machinery, primary metals, and fabricated metals. Export related jobs account for over 15 percent of employment in these industries.

The controversial phenomenon of foreign investment is highly significant for Wisconsin. Whether capital flows from abroad are welcomed as contributing to job creation and economic development, or criticized as increasing foreign influence on the American economy, Wisconsin is getting its share. In 1986 $3.2 billion of Wisconsin's property was owned by foreigners, and over 57,000 Wisconsin workers were employed by foreign controlled firms (figure 3). Most controversial of all, 95,000 acres of Wisconsin land were owned by foreign interests.

Although these figures are striking, employment of U.S. workers by foreign affiliates accounts for only 3.5 percent of the labor force, and for Wisconsin that percentage is no higher than in 1980. Acquisition of agricultural land by foreign interests has slowed, reflecting the recent investment performance of that industry. Less than 1 % of state land is owned by foreigners.

State government in Wisconsin is actively promoting foreign trade and reverse investment. The Bureau of International Development in Madison is an important component of this effort with an annual budget of over $1.5 million. Wisconsin has established foreign trade offices in Frankfurt, Germany and Hong Kong, and is adding others in South Korea and Japan. Our state is providing financial, technical, and promotional assistance to potential exporting firms. The most visible activities include frequent trade missions to Europe and Asia led by the Governor.

Competition among states for marketing goods abroad is intense. At least 30 other states are operating foreign trade offices in 15 nations. Twenty-three states have passed legislation creating arrangements to provide financial assistance to exporters. The National Association of State Development Agencies estimates that states now spend close to $40 million per year on export promotion, and that figure has been increasing at an annual rate of 15 percent.