Limiting trade is poor response to imports challenge
This is going to be the economic equivalent of a Dutch-uncle talk on international trade and foreign competition. My conversations with many business executives remind me of the gripes of students who cut class, do not do the homework, and then complain when you give them a low grade. Unfortunately, the parallel is clear. Just look at the data on absenteeism for one US industry, autombiles, hard hit by imports. As a recently published study shows, its absenteeism is four times that of Japan. Its labor turnover rate is seven times higher.
In another major manufacturing industry, one large US company (Caterpillar Tractor) that is losing its share of world markets has to pay a bonus each time a worker puts in a full week. That is like my giving an apple to each student who shows up to class on time. The sad truth is that industry after industry in the United States has been matching falling productivity with rising labor costs. We cannot blame that on foreigners.
The answer is not to erect additional trade barriers, such as the higher tariffs and import quotas the President imposed on stainless-steel imports last week. We may have convenient memories. But foreign business executives cite chapter and verse on US trade restrictions. ''Buy American'' practices by federal, state, and local governments discriminate against foreign domestic producers. We prohibit foreign ships from engaging in commerce between American ports. We limit imports of agricultural products, such as sugar, beef, dairy produce, and mandarin oranges. We also have encouraged foreign exporters of beef to restrain their sales voluntarily to avoid the imposition of formal quotas.
Although our average tariff rates are low (about as low as Japan's), high tariffs are levied on some items. Tariffs on textiles average 20 percent. Duties on fruit juices are over 27 percent, and the rate on ceramic products is over 14 percent. In addition, numerous nontariff barriers, often of a regulatory nature, are imposed by federal, state, county, and municipal governments.
Despite this nation's overall free-trade posture, ''protection'' against imports into the US now covers such basic industries as automobiles, steel, and textiles. Pleas for further trade restrictions extend to such esoteric sectors as mushrooms, mechanics' shop towels, and manhole covers. Protection is popular because it benefits a specific sector of the economy at the expense of the broad mass of the public. The higher prices that result are in effect a hidden tax on the consumer.
It would also help if our government would reduce its obstacles to our own exports. These are self-inflicted wounds. In many ways - and often without considering the effects - we prevent US exports or make it more difficult for American companies to compete in foreign markets. These export barriers range from a prohibition on the export of oil from North Slope fields to a ban on timber exports from federal lands west of the 100th meridian. When they get that specific, you can detect the smell of special interest pressures.
Export controls do more than limit US international trade for the time they are imposed. These restrictions also call into question the reliability of the US as a supplier of products to other countries, which therefore are likely to develop alternative sources.
A clear example is soybeans - hardly a product that could be considered a strategic item. Although the purpose was to contain a short-term increase in domestic prices, the main effect of the US embargo of soybean exports in 1974 was to induce Japan to turn to other producing countries, particularly Brazil. Japan proceeded to invest huge amounts in that country to develop alternatives to US production. Since 1974, we have lost a major share of the world soybean market.
The strong foreign-exchange value of the dollar also makes it difficult for American companies to compete in world markets. Many factors influence the strength of a nation's currency. But our extraordinarily high real interest rates are very important. In turn, the large budget deficits are a key influence on those rates - and we cannot blame the deficits on ''foreign devils.'' They have a made-in-America label.
By no means is the US the only nation with trade barriers. But the answer is not to retaliate and open the way for a return to the trade wars of the 1930s which exacerbated the depression.
Five positive and mutually reinforcing approaches should be followed:
* Adopt domestic economic polices that expand production and income while holding down inflation. This, of course, is a plea for tax simplification, spending reduction, and regulatory relief. A healthy economy nips the protectionist sentiment in the bud.
* Maintain greater balance in macroeconomic policies. Our shift in 1981 to tight monetary policy and expansive fiscal policy contributed substantially to high interest rates and a rise in the value of the dollar. If we are not careful , an easy money policy - coupled with outsize budget deficits - may lead to another inflationary spiral, which would further reduce the competitiveness of US products.
* Limit ''trade adjustment assistance'' - which is a politically necessary part of comprehensive trade policy - to temporary aid in shifting labor and capital from industries hard hit by imports to more competitive activities. Often the government aid merely maintains an inefficient and uncompetitive industrial structure.
* Understand the importance of multinational corporations. They adapt to economic change more readily and are less likely to urge the adoption of trade restrictions than other companies.
* Focus on improving our own productivity. We cannot blame our poor production practices on foreigners. The answer is not to prop up industries via import restrictions or government subsidies - or to prevent them by law from closing down or ''running away.'' Labor and management in each company need to face the challenge of enhanced competitiveness. We must acknowledge the painful fact that foreign competition is the most effective spur to greater productivity.