Two years later

IT is now just a little over two years since the United States Treasury and its counterparts of the other major trading nations of the world decided that the US dollar was overvalued and that we would all be better off to have it begin to get down to a more realistic level. Adjustments of this kind can be painful. We are beginning to learn how painful.

The adjustment so far has been most painful for Japan, which is suffering from sudden and severe decline in profits from exports. This in turn has reflected itself in industrial contraction and rising unemployment in Japan. The Japanese manufacturers who had been living mostly on exports tried to hang on to their share of the US market by cutting profits.

Japan and West Germany are the two countries which have been running up the largest balances from their US exports. They are the two main targets for the US drive to get US exports back more into line with US imports. But we have already run into one side effect of attempts like this to adjust the flow of trade. Japanese and Germans have lower dollar earnings, hence fewer dollars with which to buy US goods. Bringing down the dollar makes US exports cheaper and imports dearer. It also reduces the ability of others to buy from the US.

The US economy has been benefiting from cheaper imported oil. The rate of inflation in the US was kept down during 1986 by cheap imported oil. But the cheapness of the oil meant a decline in the purchasing power of the oil exporting countries. It turned Houston, and much of the rest of Texas, from a boom to a bust condition. It veiled the fact that inflation had begun to revive in the US. It was balanced off in 1986 by the cheap oil. Inflation is coming back now.

The general condition has stimulated much talk in American political circles of ways and means of reviving American productivity. Which is all to the good. US manufacturing had too often become out of date and obsolete in plant and in productivity and in overuse of labor.

It has also stimulated pressure from Washington on the Japanese and the West Germans to reduce taxes in order to release more purchasing power to their own people.

It further stimulates pressure in American political circles for higher taxes to balance the American budget in order to bolster the US dollar and thus restore America's declining purchasing power.

In other words, the pattern of trade throughout the Western world is being buffeted by change and possibility of more change. Where there long was stability and certainty there is now instability and uncertainty. The search is on for actions by governments which might restore the conditions which have prevailed from the end of World War II until these times.

But, if we are realistic about it we can recognize that these are new and different times, and all this change and talk of more change is the process of adjusting to a new and quite different world in which both the US and the Soviet Union will still be superpowers, but not as ``super'' as they have been for most of the 42 years since World War II.

With or without higher taxes in the US, with or without lower taxes in Japan and Germany, with or without major improvements in productivity in US manufacturing, nothing is going to bring back the conditions which dominated the world when Dwight D. Eisenhower was President. In those days, in fact, there was only one superpower. The Soviets were not in the same league with the US in economic strength.

The US will continue to be the biggest and probably the most resilient economy. It will continue to be able to support major military power. But the margin of superiority is narrowing and must continue to narrow. And the competition to keep in the front rank will become tougher. The US had a nearly 40-year coaster ride from victory in World War II. We are down on level ground now, among equals in everything but size.