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U.S. Industrial Policy Could Protect Trade

July 28, 1985

Regarding "Protectionist Solutions to Trade Problem Are Easy, but Too Dangerous" (Viewpoints, July 21), Americans are indeed troubled by our horrendous trade deficit, which may reach $150 billion this year. Scarcely a day goes by without news of plants closing, transferring manufacturing operations--including jobs, of course--overseas. Nearly a third of our unemployment--about 3 million jobs--can be accounted for by the trade deficit.

Unfortunately, any suggested approach to dealing with this issue immediately evokes the scare word "protectionism." The result is that we drift along with no trade policy as our manufacturing sector is dismantled, while we patiently wait for benign market forces to achieve trade equilibrium.

There is no indication whatsoever that market forces will correct the problem, and those who label any measure to deal with the trade deficit as "protectionist" distort the meaning of the word and, more importantly, cloud the issue.

"Protectionism" implies that our industry would be insulated against fair and square competition, that there is an absence of government subsidies to our competitors, that our goods have as free access to our competitors' markets as they have to ours and that the international monetary system is neutral in its impact on trade.

This obviously is not the case: Our competitors often receive direct or indirect subsidies, our goods are kept out through one means or another and, above all, the overvalued dollar operates to grossly handicap our export industries and encourage imports.

So when measures are considered to correct these causes of the trade deficit, they cannot validly be considered "protectionist" at all, as they merely attempt to achieve the "level playing field," that trade theory assumes exists.

Of course, we can't ascribe the totality of our trade deficit to these phenomena. Let's say, as a crude approximation, that the trade deficit is one-third caused by the overvalued dollar (having its roots in our budget deficit and consequent high interest rates), one-third caused by unfair trading practices by our trading partners, especially Japan, and the final third caused by our inability to compete without protection with the rest of the world.

What it boils down to is that America urgently needs an industrial policy. We must face the fact that even after correcting our trading relationships for unfair trading practices and for distortions caused by the overvalued dollar, pure protection will be needed if we wish to preserve the core of our manufacturing sector.

There is no way that our steel industry, for example, paying $25 an hour for labor, can compete with the South Korean or Brazilian steel industry, using the same technology, paying $2 an hour, nor can our textile industry compete with $1-an-hour Chinese labor.

Do we want to denude ourselves of basic and strategic industries and skills in an increasingly uncertain world? This is what an industrial policy must answer, and it's this issue that is clouded by the pejorative use of the term "protectionism" and its attendant arguments.

HOWARD F. SMITH

San Luis Obispo

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