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Avoiding Protection's Risks

September 15, 1985

President Reagan is giving appropriate direction to the growing demand for action on trade, guiding lawmakers away from the dangerous but tempting option of protectionism and proposing the constructive alternatives of export promotion and the elimination of unfair trading practices.

"You can't do away with the trade deficit and capital inflows without causing serious problems," Paul Volcker, chairman of the Federal Reserve, cautioned Congress the other day. "Jump on it with protectionist measures, and you're going to get more trouble than you bargained for."

That admonition should be kept front and center in the weeks ahead.

As pressure builds to maintain existing protection for sugar, to broaden the already excessive protection of textiles and apparel and to extend protection to those among American shoemakers who have not been able to compete in the world market, legislators should keep in mind that tariffs and quotas are more likely to reduce employment than to expand it. If the United States raises even higher the walls of protection now in place, the results inevitably will be retaliation, declining exports and a heightened risk of repeating the grim aftermath of the Smoot-Hawley tariff law of 1930.

There is a vast potential for expanded exports. The President appears ready to reverse his earlier coolness to export finance assistance from the federal government. The Export-Import Bank is just one of a variety of approaches that could help Americans compete with foreign companies that already enjoy national government support. There are also proposals to facilitate export licensing and use overseas government offices to promote U.S. exports, as most European nations already do.

Assuring fairness is not as easy as it may sound. The President has picked out for immediate action four particular examples of alleged unfairness to U.S. exporters by Japan, Brazil, South Korea and the European Community. This may serve to demonstrate his determination to do something, but it is not likely to be productive. The most useful approaches are longer term and slower in payoff--among them none more important than the new round of global trade negotiations now accepted by a majority of the members of the General Agreement on Tariffs and Trade. There already are in place adequate remedies for unfair practices. To ignore or bypass them might satisfy some short-term political demands but risk a long-term disruption of the system.

Leading Democrats in the House and the Senate have proposed a 25% import surcharge on nations that maintain both a disproportionate surplus in foreign trade and unfair barriers to U.S. products. As now written, this would affect only Japan, Brazil, Taiwan and South Korea. The authors are convinced that it would serve as an incentive to reshape those four economies along lines more acceptable to American traders and to encourage fair play. That may be. But government trade officials predict that the measure would lead to reduced exports to the United States, which in turn would fuel a new inflation, rather than serving to open foreign markets to more U.S. exports. And it seems on the face of it unwise to apply the same medicine to both Japan, with its wealth and advanced industrialization, and Brazil, still in the process of development, where enormous poverty helps justify protection of fledgling industries in the same way that the United States guarded itself from Europe's competition in its early years.

But there is no question that unfairness persists. Indeed, the United States is not immune from the charge. So there is merit to proposals to expand the powers of the U.S. trade representative, permitting a more assertive role in fighting discrimination and bringing retaliatory action when reciprocity is not honored.

The United States cannot have it both ways. If it wants a vital economy, it must be part of the real world, and the only way to do that is through expanding international trade. The great future market is the Third World, where 40% of U.S. exports already go. Today's imports from developing nations are the building blocks of tomorrow's exports to those nations as they generate their own expanding markets. It is in that direction, to competitive participation in the world market, that Congress must direct the nation.

World trade liberalization based on reciprocity is as appropriate today as when Cordell Hull won acceptance of it from Congress 51 years ago. The business of Congress and the President must be the promotion of trade, not its frustration. Promotion, to be effective, will include vigilance to assure that reciprocity is not neglected.

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