KEY JUDGMENTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00176R001300140004-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 5
• Document Creation Date: December 19, 2016
• Document Release Date: February 2, 2007
• Sequence Number: 4
• Publication Date: March 11, 1982
• Content Type: REPORT

Approved For Release 2007/02/02 : CIA-RDP85TOO176R001300140004-4
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 Approved For Release 2007/02/02 : CIA-RDP85TOO176R001300140004-4
KEY JUDGMENTS
The global economic forces discussed in this paper have the following
major implications for US interests and policy during the next five or so
-- US economic performance will play a much greater role in
stimulating global economic activity than has been the case since
the 1960s. Neither Western Europe nor Japan is able or willing
to provide the engine of growth. The oil-rich states, the newly
industrializing countries, and the Communist countries, all
exhibit disabilities that prevent their being the burgeoning
markets they were in the 1970s.
The ability of the US government and, in fact, all other
governments, to control global economic forces will continue to
diminish. This results from pervasive interdependence--the
increasing and accelerating flow of capital, technology and know-
how across national borders, and from the internationalization of
production through multinational firms. As a consequence,
governments will find it increasingly difficult to pursue
preferred domestic economic policies without considering the
impact of their policies on other nations' economics, and the
influence of international market forces on their own.
-- The competitive challenges facing the US economy will continue to
shift away from traditional consumer manufactures and toward high
technology products and the service industries. Other developed
countries will continue to pare the US technological lead and to
shorten the time required to absorb the most advanced technology
 Approved For Release 2007/02/02 : CIA-RDP85TOO176R001300140004-4
pioneered by others. The newly industrializing countries (NICs)
of East Asia and Latin America will take over an ever-widening
array of traditional consumer manufacturing lines from textiles
to televisions. US firms, thus, will have to push the industrial
development frontiers more aggressively and be ready to shift
quickly into new product lines. US workers will have to be more
highly skilled and prepared to shift to new jobs more frequently.
Western Europe's economic woes will aggravate the existing
differences with the United States on such basic issues as trade,
finance, and defense. Although the region's economic
difficulties will eventually generate powerful new forces for
change, sharp divisions within and among European states will,
for the next several years, make US-European relations
particularly difficult.
Economic frictions with Japan will not likely be resolved for
many more years. The Japanese tendency to concentrate their R&D
efforts, production know-how and marketing skills in a relatively
few but highly dynamic industries and product lines, will create
major disruptions in Western markets. The Japanese will
aggravate these trade frictions by continuing to shelter their
domestic market to a degree unparalleled elsewhere. Although
these fundamental problems will remain, their intensity will wax
and wane with the swings in the yen-dollar rate. Within the
year, for example, the expected appreciation of the yen against
the dollar will, a year or so thereafter, make US exports more
competitive, thus, reducing--at least temporarily--the trade
frictions.
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-- Next to the Japanese, the newly industrializing countries (NICs)
will pose the most difficult trade adjustment problems for the
United States. The NICs will certainly be able to compete
effectively over a widening range of products, since they are
endowed with a disciplined, highly skilled, low-wage labor force.
At the same time, the NICs will provide the fastest growing
foreign markets for US goods and services.
-- Declining real oil prices will create a new set of political
tensions for oil-exporting LDCs. The poorer and more populous
producers will have to deal with reduced economic growth and
unfulfilled expectations of rapidly rising living standards.
Even with reduced dependence on foreign oil, the US security
interests in these countries will remain strong.
-- Most of the poorer LDCs are unlikely to achieve much economic
progress, and their shaky political regimes will, in many cases,
make tempting targets for Soviet meddling.
-- The deteriorating economic situation of the USSR, combined with
an aging leadership, poses grave uncertainties for US policy. It
will remain unclear for some time, whether economic stringencies
will propel Soviet leaders toward foreign adventures or toward
accommodation with the West. The United States and its allies,
thus, will have to be prepared both to deter and contain Soviet
expansionism and to encourage and reward Soviet moderation.
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-- The global economy will remain vulnerable to three low
probability events that could have a dramatically disruptive
impact.
- A substantial and prolonged interruption in the flow of
Persian Gulf oil.
- The collapse of the international financial system.
- Rampant protectionism.
The most dangerous period for these contingencies will be at the
top of the business cycle, when speculative pressures are at
their peak, and at the bottom of a recession, when unemployment
and financial stresses are most intense.