Free trade: rhetoric vs. reality
Rep. Lee H. Hamilton (D) of Indiana is vice-chairman of the congressional Joint Economic Committee.
THERE is a glaring gap between the Reagan administration's trade rhetoric and its trade actions. In case after case, the administration has bowed to pressure for trade restraint when there has been a choice between granting import relief or taking the heat for its principles. Consequently, more goods consumed in this country are protected today than at any time in the postwar period.
Previous presidents deviated from a free trade policy: Mr. Nixon had his Multi-Fiber Arrangement; Mr. Ford raised barriers against specialty steel imports; Mr. Carter sheltered the domestic footwear industry. But these were isolated actions which cut against the grain of an overall American commitment to open markets at home and liberalized trade abroad. The Reagan administration's response has been different. Comparing its rhetoric to its actions yields some surprising results.
First, the rhetoric. In one of his radio broadcasts, President Reagan said, ''Free trade serves the cause of economic progress, and it serves the cause of world peace. . . . We're in the same boat with our trading partners. If one partner shoots a hole in the boat, does it make sense for the other one to shoot another hole in the boat? Some say yes, and call that getting tough. Well, I call it stupid.'' In the introduction to this year's Economic Report of the President, Mr. Reagan wrote, ''I remain committed to the principle of free trade as the best way to bring the benefits of competition to American consumers and businesses. It would be totally inappropriate to respond by erecting trade barriers or by using taxpayers' dollars to subsidize exports.'' US Trade Representative William Brock has warned members of the Joint Economic Committee not to indulge in protection, citing the dangers of a ''fortress mentality'' and of ''pulling up the drawbridge'' against open markets.
Now, the record. Import protection has expanded since the Reagan administration took office. An estimated 35 percent of the manufactured goods we consume are now protected. The administration, not Congress, has imposed new restraints, or tightened old ones, on autos, textiles, carbon steel, specialty steel, and motorcycles. These products are important to the American consumer, and their prices have an important effect on inflation. Consider what has been done in each instance.
Autos. There were no restraints on autos coming into our market from anywhere in the world until the Reagan administration negotiated a three-year voluntary restraint agreement covering $8 billion in auto trade with Japan. It has been estimated to cost American consumers $1 billion a year. The administration justifies the agreement as a necessary alternative to the local content legislation initiated by some members of Congress, but talk of the lesser of two evils rings hollow. Local content probably would not have passed the Republican-controlled Senate, and Congress probably could not have overridden a veto if it had. The rationale seems less plausible still when we consider that the agreement, coinciding with the worst years of the recession and intended to ''buy the industry some time,'' was given a fourth year of life by the administration even though the industry is recovering well.
Textiles. The Reagan administration admits that its curtailment of imported textiles and apparel not already subject to quota was pure protection for an industry which has enjoyed more than its share since the 1950s. The action was taken to fulfill a campaign pledge. In order to avoid a troubling decision on Chinese subsidies, however, the administration granted more relief than the industry had requested and ended up hurting developing countries that did not subsidize exports.
Carbon steel. To get our steel industry to withdraw certain trade petitions, Commerce Secretary Malcolm Baldrige negotiated with Europe to impress quotas on carbon steel imports into the United States. The effect of the agreement was broader than the effect of the petitions in three respects. First, it included piping and tubing, products not found to be subsidized. Second, it covered products on which no petitions had been filed. Third, it included West Germany and the Netherlands, nations whose steel subsidies were judged to be negligible.
Specialty steel. President Ford gave the specialty steel industry protection in 1976 - Reagan was not first. But the assistance provided by Reagan remains troubling for two reasons. First, the administration acceded to the demand for more shelter after the industry already had been allotted four years during which to adjust. Second, the industry filed an unfair-trade petition, but once again the fair-trade laws were circumvented and the industry was sheltered from all imports, fair and unfair.
Motorcycles. In response to the plea of one company, Harley-Davidson, the Reagan administration imposed a 49.4 percent tariff on heavy motorcycles, almost all of which come from Japan. The price of imported motorcycles is expected to rise a minimum of 10 percent during the tariff's first year and more in subsequent years.
Are there industries that the Reagan administration has refused to protect? Only two come to mind: machine tools and shoes. The former industry filed a trade petition alleging unfairness under an obscure provision of the tax code, so granting relief would have opened up a whole new realm of controversy. The latter industry is back, asking for protection and confident of receiving it. The steel and copper industries, among others, are also asking for protection. They, too, are fairly confident that they will get favorable treatment in this election year. Perhaps any president would relent under the circumstances, but Mr. Reagan cannot have it both ways. He cannot preach free trade to Congress when it is his administration, not Congress, that is quietly raising import barriers for every domestic industry which asks.