The first full-scale confrontation between Congress and the White House over protectionist trade legislation is now a major step closer. Before starting its drafting work on a tax-reform bill, the House Ways and Means Committee on Thursday passed without amendment a textile-industry protection measure strongly opposed by the White House. Early floor action is expected for both the House textile bill and its Senate counterpart.
In other trade-related developments, Canadian Prime Minister Brian Mulroney was expected to call for a comprehensive round of new trade talks with the United States. And the war of nerves between currency traders and central bankers continued as the US dollar fell in early trading Thursday.
The House bill would force reductions of 25 to 40 percent in imports of Asian textiles that account for about 70 percent of the foreign-made clothing and textile products sold in the US.
``The probabilities are, that will be the first major confrontation'' on the question of protectionist trade legislation, US Trade Respresentitve Clayton Yeutter said yesterday.
Mr. Yeutter added that a presidential veto of the textile measure was ``almost assured. '' Earlier in the week Commerce Secretary Malcolm Baldrige predicted the Senate would sustain a veto of the textile bill, which has nearly 300 sponsors in the House.
Prime Minister Mulroney was set to announce in the House of Commons yesterday that he has asked the US to enter into talks that could lead to the widest possible elimination of trade barriers between the two countries, Canadian government sources said. Canada is America's largest trading partner.
Mr. Mulroney's move echoes a call by Republicans in the US House that the two nations establish a free-trade zone as soon as possible. Yeutter said there ``will be a positive response from President Reagan,'' with talks likley to start after the beginning of 1986.
Meanwhile, currency traders and central banks continued testing each other's resolve as the US dollar resumed its slide in early trading Thursday.
Last weekend five major economic powers -- the US, Germany, France, Japan, and Britain -- agreed to work to lower the US currency's value and hinted that they would intervene in currency markets toward this end. The dollar dropped sharply in early European trading Thursday. On Monday the dollar had plunged 4.5 percent before steadying Tuesday and resuming a downward move late Wednesday.
In Tokyo the dollar fell Thursday to its lowest closing rate since March 7, 1984, after the Japanese press reported the Bank of Japan was trying to force the dollar down to the 200- to 210-yen level. The Japanese central bank's move was viewed as a bid to cool protectionist pressures in the US. When the dollar falls relative to the yen, it makes it harder for Japanese firms to sell goods in the US and easier for the US to sell goods in Japan.
Despite Thursday's vote on the textile bill, Ambassador Yeutter said ``we are making progress'' in coping with the political and economic forces feeding protectionist sentiment in the Congress.
Speaking to reporters at a breakfast, Yeutter noted that some Democrats are ``quite uneasy'' about the consequences of protectionism and added that the issue ``will not be a winner for Democrats in 1986.''
Several pollsters have argued the same thing. For example, Democratic pollster Patrick Caddell recently noted that although protectionism might help in some congressional races, ``there is no national majority here.''
One reason for emerging congressional unease with protectionism is the pain voters would feel from retaliation by US trading partners.
``There is going to be a big price to be paid by the US'' in terms of retaliation, if the textile bill is enacted, Yeutter said. While voters want the US to be treated fairly by trading partners, imported goods are generally popular.